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Meaningless Trade Numbers


Each semester, I warn my students to beware that too many reports and discussions of the ‘trade deficit’ fail to explain what is meant by the term.  Does the writer or speaker have in mind the current-account deficit or the merchandise-trade deficit?  (In most cases, I’m sure, the writer or speaker hasn’t anything in mind, for they’re unaware that there are different international accounts.)

And while I have little use even for discussions of the current-account, at least this account measures trade in goods and services — unlike the merchandise-trade account that measures trade only in goods.

Because the U.S. is overwhelmingly a service economy, using the merchandise-trade account to get a picture of Americans’ trade with foreigners is wholly misleading, for that account takes no notice of trade in services.

The above graphic appears in this story in today’s Washington Post.  It is a fine example of using merchandise-trade numbers to exaggerate and distort what’s happening in international commerce.