Trade Balance： Numbers Can be Deceiving

I. Introduction Trade disputes have become more prevalent and acute in recent years. Almost all disputes have centered on trade balance and/or market access of certain merchandise or services. It is commonly believed by the public, media and politicians that trade surplus resembles mercantilism and trade deficit represents vulnerability. This is a major reason why Sino– US trade deficit and dispute settlements in the WTO relating to China have been stealingTrade Balance: Numbers Can be …

Trade Balance: Numbers Can be Deceiving

Trade disputes have become more prevalent and acute in recent years. Almost all center on bilateral trade balance and/or market access of certain merchandise or services. However, since at least the mid 1980s, affiliate sales have become a more direct and more powerful form of market access than the traditional cross-border commercial transactions for developed countries, whereas developing countries still rely predominantly on traditional trade. The importance of the international production supply chain is increasing with a bias against downstream producers. The current data collection and compilation system of trade balance can not reflect these changes in the world economic environment. It overstates exports of developing countries and understates their imports. None of the countries in the world can illustrate the weakness of the conventional system better than China.