WTO chief: we’re calculating trade imbalances all wrong

In today’s Financial Times, World Trade Organization director-general Pascal Lamy argues that the way we calculate trade flows is inaccurate and is exacerbating tension over imbalances. The problem, he says, is an outdated system that assigns a given good only one country of origin: Apple’s iPhone illustrates this clearly. It is assembled in China, then ...

By , a professor at Indiana University’s Hamilton Lugar School of Global and International Studies.

In today's Financial Times, World Trade Organization director-general Pascal Lamy argues that the way we calculate trade flows is inaccurate and is exacerbating tension over imbalances. The problem, he says, is an outdated system that assigns a given good only one country of origin:

In today’s Financial Times, World Trade Organization director-general Pascal Lamy argues that the way we calculate trade flows is inaccurate and is exacerbating tension over imbalances. The problem, he says, is an outdated system that assigns a given good only one country of origin:

Apple’s iPhone illustrates this clearly. It is assembled in China, then exported to the US and elsewhere. Yet the components come from numerous countries. According to a recent Asian Development Bank Institute study, the phone contributed $1.9bn to the US trade deficit with China, using the traditional country of origin concept. But if China’s iPhone exports to the US were measured in value added – meaning the value added by China to the components – those exports would come to only $73.5m.

I’m not yet clear on whether most economists would support Lamy’s view (and some of the comments on the piece are pretty harsh in terms of economic fundamentals) but it’s a clever gambit for improving what remains a difficult atmosphere for international trade negotiations.

David Bosco is a professor at Indiana University’s Hamilton Lugar School of Global and International Studies. He is the author of The Poseidon Project: The Struggle to Govern the World’s Oceans. Twitter: @multilateralist

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