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Trading Places

Jun 14, 2011 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic History, International Trade and Finance • 249 Views    No Comments

A switch has taken place.

More than half of our imported goods used to come from the G-6 countries (Canada, France, Germany, Italy, Japan, the U.K.) Now, we import more from China, Mexico and Brazil.

Specifically, in 1987, 55% of U.S. merchandise imports came from Europe and Japan. Now the total is down to 31%. By contrast, China, Mexico, and Brazil send us 32% of the goods we purchase from abroad. (Scrolling down here, you can see where the remaining 37% is coming from.)

And, according to economist Michael Mandel, perhaps we are importing even more from China, Mexico and Brazil than the statistics indicate. If goods are now cheaper, then recent dollar totals may mask an even higher quantity.

According to another point of view, though, maybe we are importing less. Take the iPhone. Assembled in China, its components come from 9 countries, including the U.S. Should it count as a Chinese export in U.S. trade statistics if researchers have calculated that the value added by the Chinese is only $6.50 out of a wholesale price of $178.96?

The Economic Lesson

Called net exports, a nation’s trade balance is the value of exports minus the value of imports. Simply defined, exports are goods produced in the U.S. and sold abroad. Imports are goods produced abroad and sold in the U.S. When the U.S. sells domestically produced goods that are worth more than those it imports, it has a trade surplus. It runs a trade deficit when the opposite is true. So, if a country imports a car for $20,000 and exports a tractor for $100,000, it has a trade surplus of $80,000.

An Economic Question: Would you record the iPhone, with components that are made around the world but then assembled in China, as an import from China? Explain.

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