Trump administration officials this week defended the current methodologies applied to collect and present U.S. trade data and statistics, and dismissed as “completely inaccurate” a report by the Wall Street Journal that claimed U.S. agencies are considering changing those methodologies.
Last week's Wall Street Journal article stated that administration officials have asked the Commerce Department and the Office of the U.S. Trade Representative to change the way they calculate trade flows in a manner that would increase the trade deficit. That calculation would exclude re-exports -- goods that pass through the U.S. without “substantial transformation” -- from the total exports but those goods would be included in the U.S. imports data.
A senior Commerce department official on Feb. 21 clarified to Inside U.S. Trade that the discussion referred to in the news report was a “general” one that suggested additional data could be collected but that was not aimed at changing the methodologies the Bureau of Economic Analysis applies to date.
Currently, each month, the U.S. Census Bureau releases raw data on the “total exports” from the United States and total imports coming in (called “general imports”). This data, as demonstrated by the NAFTA example, distorts bilateral trade balances. For example, this data counts as U.S. exports goods produced in China, stored in a warehouse after being taken off a ship from China in California’s Long Beach port and then later, without alteration, trucked to a destination in northern Mexico. This data also counts the Chinese imports into the United States as part of the U.S.-China trade balance. The result: The U.S. deficit with Mexico would be artificially reduced, and the U.S. deficit with China would be artificially increased. (The Census measure does provide accurate accounting of our trade balance with the world because the re-exports and those imports that get re-exported balance out.)
A more accurate measure for bilateral trade balances come from the U.S. International Trade Commission (ITC). Each month, a few days after the Census data is released, the ITC posts refined data for “domestic exports” that includes only U.S.-produced exports and data for “imports for consumption” that removes imports destined for export processing zones. This ITC data is used in the congressionally mandated trade agreement studies required under Fast Track that are the basis for projections on trade pacts’ effects on economic growth and jobs. This data accurately captures American-made exports. But the import data still can be skewed because some of the imports counted in “imports for consumption” may be re-exported. That is to say that the U.S. International Trade Commission’s current import data is not detailed enough to avoid distorting the U.S. bilateral trade balances with numerous nations on the import side even as it corrects for the false inflation of exports.
If the U.S. government provided data on where all goods exported from the United States were actually produced, then it would be possible to extract from the import data those goods that end up being re-exported. Canada requires that all imports indicate a country of production. So, for instance, if a Korean firm producing televisions in Mexico so as to obtain duty-free access into the U.S. consumer market under NAFTA were to import $2 billion in televisions into the United States, but then $500 million of those goods were re-exported to Canada, the Canadian data would let us know to count only $1.5 billion as U.S. imports for consumption. Expanding on this notion, if the Trump administration were to require that all U.S. exports indicate their country of production, then the import side of the ITC data could be perfected across the board.
In terms of how it compares to the existing approach, this methodology would not appear to change the overall trade balance. However, it could shift the numbers around a bit between countries. For example, it could make the trade deficit with China lower and the trade deficit with Mexico higher. Of course, most people would say that bilateral trade deficits don't matter (and the 40+ year overall trade deficit hasn't hurt the U.S. economy either), but the goal here may be to get some new numbers and use them for political purposes, perhaps to help push for a "tougher" trade deal with Mexico. Will this strategy work? The more interesting question for me is what exactly these proposed NAFTA changes will be, as they are probably coming regardless of the trade deficit figure.