Recalculations of trade deficits will increase distortions

Andrew Karolyi, professor of asset management and finance at Cornell University’s SC Johnson College of Business, comments on recent reports suggesting Trump’s administration is considering recalculating trade deficit numbers. He says that while there is room for improvements on such statistics, any change would need a much more refined and nuanced approach to avoid further imbalance of trade computations around the world.

Bio: https://www.johnson.cornell.edu/Faculty-And-Research/Profile/id/gak56  

 

Karolyi says:

“There are well established protocols for the computation of a trade balance with national income accounting methods. National statistical agencies, such as the U.S. Census Bureau, U.S. Bureau of Economic Analysis, along with the Department of Commerce, follow very similar balance-of-payments-basis protocols everywhere around the world.

“They work them from customs data on the value of goods and services trade crossing borders between residents and non-residents. None of them are perfect. Period. But they are long well established. Surely they can be improved upon to deal with the growing complexities of throughputs up and down the increasingly-global supply chains businesses build.

“But recalculations to arbitrarily limit potential re-exporting of goods and services will require even more refined, nuanced interpretations of the global supply chain. Some of these refinements may be more appropriate in some industries than others.

“In my opinion, the recalculations only risk exacerbating distortions further in the balance of trade computations around the world.”

 

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