March 13, 2018
The Washington Post has long used both its opinion pages and news section to advance its agenda on trade. It is famous for inventing a GDP boom in Mexico to push the case for NAFTA. More than a decade ago it ran an editorial claiming that Mexico’s GDP quadrupled between 1987 and 2007, which it attributed to NAFTA.
The actual number was 84.2 percent, according to the I.M.F. In spite of this gross error, the paper has never run a correction.
Given the Post’s history on trade, it was not surprising to see a piece (“The obsolete number that drives Trump’s China obsession and how to fix it”) telling readers that China’s trade surplus with the United States is actually much smaller Donald Trump thinks it is. The gist of the piece is that China’s trade surplus with the U.S. is actually considerably smaller than the standard data reported by the Commerce Department. The reason is that much of what China exports includes inputs from other countries, including the United States.
The piece offers up the example of the iPhone, which is assembled in China. In the trade data the full value of the iPhone is counted as a Chinese export and a U.S. import, but most of the value actually comes from inputs produced in other countries. By counting the full value of the finished product as an export from China we are seriously overstating the value of exports from China.
While this point is entirely accurate, there is a flip side to this issue which the piece amazingly ignores. While much of the value-added in products imported from China originates in other countries, much of the value-added in our imports from other countries originates in China. China is a huge exporter not only to the United States, but to Japan, Korea, Europe, and elsewhere.
If we want to do a serious value-added analysis of our trade balance with China we would not only subtract out the foreign value-added in Chinese exports, we would also add in the Chinese value-added in our imports from other countries. It would take some serious work to calculate the total figure (see Rob Scott’s analysis), but the deficit would clearly be larger than the one the piece calculates by just pulling out the foreign value-added in Chinese exports.
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