Thursday, January 27, 2011

Valued-added by a country not the same as goods traded

Pascal Lamy, the director-general of the WTO, provides some sanity to trade discussions in the Financial Times through his recent editorial, "Made in China" tells us little about global trade. The simple views of trade in goods does not fit the way trade in conducted in the 21st century.

Parts are made all over the world and may be assembled in one country. China may be the great assembler of the world. So what is the trade deficit? It could be the entire value of the good that is shipped or more rightfully, it should be the valued-added in production. In this second version, the trade valued-added by China is small. Profits are razor then and the deficit with China is not as large a problem as suggested. For example, we book the import of an i-phone for its entire value when the actually valued-added was small. Most of the value added came from design which was done locally. The trade numbers increase fear and makes many want to increase protectionism when trade should be further embraced.


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