MMcC. Perhaps. But even Europeans love a bargain. Here in New York it sure seems like a lot of Europeans have been lured away from the undeniable charm of a week in Paris or Rome for a little rest, relaxation and shopping in the US ….

I would put more emphasis on the fact that the lead time on a lot of capital goods orders is fairly long, and through most of 2002 the dollar was either very strong (first part of the year) or fairly strong (later part of the year). The big dollar fall came in 03. And my 04/05 there was a noticeable pickup in exports (from an admittedly low base — in 04 US exports where i think lower relative to US GDP than in 97 …). The lack of improvement in the trade balance before 06 and really 07 had more to do with ongoing strong import growth tied one suspects to the housing boom.

I remember this being discussed in a meeting of European fund managers at the time. One particularly pro-European manager put forth an argument that no-one had a good answer to: when the dollar was strong (99-03), the last of the EU trade barriers were eliminated and European consumers who were used to buying a given American product found a native substitute. When the dollar fell, these same consumers realised that they liked the native good better. As a European who bought his first German car and Italian kitchen in that period, I think there may be something to his point…

If Taiwan’s population is 22 million and their reserves are $287 billion, then for China to have the same per capita reserves, they would have to expand reserves to about $13 trillion.

Keeping up with the neighbors?

Any components in the good that were bought in the US and then used in the external assembly would show up as an export, offsetting the rise in the uS import bill associated with importing the good.

The profits the US firm earns abroad though also enter into the US data — but not the trade data. They are part of the income balance. The large profits US firms earn abroad (relative to the smaller profits foreign firms earn in the US) currently offse the US interest bill on its foreign debt.

the US statisticians have produced a trade data series that reallocates the income firms earn abroad to the trade account. The result is a smaller trade deficit — but a much larger income deficit and an unchanged current account deficit.

Bottom line: in my view, the data is accurate. the real trade deficit is big. And a good made abroad by US firms is still an import.

Does the US overal trade deficit include goods and services produced by US firms abroad and then re-exported to US? Someone once told me that the real US trade deficit is not so remarkable once we take this issue into account. Thanks.