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Trade Balance Data do not Provide the Full U.S. Services Trade Picture
Feb 28, 2003

Census and BEA report that the December 2002 U.S. trade balance, defined as the difference between U.S. cross-border exports of goods and services and U.S. imports of goods and services, registered a deficit of $44.2 billion, up $4.2 billion from November. For the full year 2002, the U.S. goods and services balance hit a negative $435.2 billion, $76.9 billion more than the 2001 deficit of $358.3 billion.

If you are tempted to conclude that the U.S. economy is being hammered internationally, you might be right. You could also be wrong. Missing from the picture are the benefits to American companies from sales of tens of thousands of their affiliates abroad. There has been a sustained trend toward selling through affiliates. Recent BEA data put these affiliate sales at $2.9 trillion in the year 2000, almost three times the value of traditional U.S. cross-border exports of goods and services ($1.1 trillion). The traditional cross-border trade balance data released monthly do not reflect benefits of affiliates sales to the U.S. economy. Wow!

Occasionally BEA does publish sales affiliates data needed to reflect these impacts. The most recent such data (see Jeffrey Lowe, “An Ownership-Based Framework of the U.S. Current Account, 1989-2001,” Survey of Current Business, January 2003, pp. 17-19) show that, when one includes the net benefits to the U.S. economy of the sales of affiliates, the economic benefit to the U.S. of international commercial activities rises. In 2001, the deficit on goods, services and net receipts from sales by affiliates was $102.6 billion less than the deficit on trade in goods and services in the conventional international accounts reported each month ($358.3 billion in 2001). Thus, accounting for the benefits to the U.S. economy of sales of U.S. affiliates abroad would have reduced the net “trade” deficit in 2001 substantially. Clearly, a lot is missing from the traditional trade balance figures.

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