China Cheating on US Trade Deficit?

WHOSE BOXES?

According to figures released by the US Census, the overwhelming majority of the U.S. $727 billion trade deficit in goods for 2011 is due to "intra-firm" or "related party" trade: trade between two units of the same corporation.

This suggests that China is innocent of the many accusations of unfair trade and currency manipulation made against it.

Moreover, most companies manipulate the prices between their subsidiaries to minimize tax liabilities, (known as "abusive transfer pricing") which is why America's Fortune 500 companies pay an average of 9% on their incomes.

Here's a summary of U.S. goods trade and related party trade with the world and selected countries, 2011. Billions of $$:


Country         Exports from US      Imports to US         Balance

World            $1480.4                   $2707.8                 - $727.4
Canada          $  280.9                   $  315.3                 -     34.5
Ireland           $     7.6                    $    39.4                 - $  31.7
Mexico          $ 196.4                    $  262.9                 - $  64.5

"Related party trade" is 27.6% of goods trade, but 95.0% of the trade deficit. And in countries where the U.S. has heavy foreign direct investment, like Canada, Ireland, and Mexico, the trade deficit for intra-firm trade is actually higher than the country's overall trade deficit!

Overall, this suggests that most of the U.S. trade deficit is due to U.S. corporations offshoring production and exporting the products back home. And, of course, tax-dodging at the same time. For a serious discussion of this issue, look at the excellent blog, Middle-Class Political Economist.

As always, your comments are welcome and encouraged. Issues like this need more than just one opinion. And do feel free to add links to useful sources and stories!