Wednesday, December 20, 2017

"The Sisterhood of the Traveling Pants" is not just a movie title---it is a story of International Trade. Those pants REALLY DO travel

Saw this graphic on Twitter HERE. It nicely illustrates the complexity of international trade. Trade is the sum of the supply chain that is necessary for the production of any good, from the simple to the complex. Regardless of the complexity of the good being produced, the supply chain is itself an eco-system that must be nurtured and respected.

Also, it serves as a reminder to me as to how deceptive trade numbers can be---not intentionally, mind you. However, they way exports and imports, hence the trade balance, are calculated and accounted for does not present the whole story.  Trade is a story of the travels of inputs that go into the making of outputs---the final good that will be purchased by the end-user.

Example: If we ship $80 in inputs to Mexico (not counted as US Exports!). Those inputs are assembled with $20 in Mexican labor (now value is $100) and exported to the US, then Mex is credited with $100 in exports and the US with $100 in imports. See the distortion?

Source: HERE

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