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

Do we buy stuff from Countries OR do we buy stuff from people? Here is a different look at US trade numbers.

Trade numbers are published on a national level---comparing country to country. No problem with that, but here is another way to frame the numbers.

We trade with the actual, real live citizens of the respective country. They buy our stuff and we buy theirs.

So, how do the national trade numbers look when we quantify them on a per person basis?

Below is a graphic I created to show the US trade balance with the Top 10 (plus the EU Area) trade partners as a balance nationally (yellow) and on a per person (capita) basis.

I took the value of US exports to the respective country and divided it by the population of that country. This gives the dollar value of US goods on per person basis the person bought. I then took the value of imports from a country and divided it by the US population. This gives the dollar value of the foreign goods US citizens bought. The difference between the two numbers gives a per person SURPLUS of DEFICIT in trade between the countries.

Notice nationally the US has trade DEFICITS with all trading partners, except the UK.  But if we look at it on a per person basis, we have trade deficits with only 3 countries (the EU as a whole, China, and India).

In other words, for the most part, in trade the US citizens buy less from foreigners than they buy from us---we run person to person trade SURPLUSES.  Only with the relatively poor countries of China and India do we buy more from them then they buy from us.

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