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The trade deficit is a worthless and a meaningless number for one simple reason: the statistic is a relic of an era when the only goods that were imported or exported were goods that fit in a box or a barrel.

If a company sells a tangible item for export, when it ships it, the value must be reported on a Shippers's Export Declaration. This document is kept by the Bureau of the Census, as odd as that might sound.

If a company sells a license for something for export, they do not report the value to anyone, except as it is aggregated in the total sales for purposes of corporate taxes.

For example, when Boeing exports $1 million in airliner repair parts, the shipment must be declared on a SED.

When Oracle sells a $1 million license for its software, the government doesn't even know. There is no SED.

When Disney and Pixar ship the master prints of the new movie Cars to their distributor in Japan, they only must declare (on the SED) the value of the film in the cans. That is, a few thousand dollars. They do not have to declare the millions of dollars in expected revenue.

To the extent that the US exports goods that are not shipped on pallets and boxes, but instead are really software and media, or licenses and contracts, the Trade Balance statistic is a totally misleading number.

Counting shipping containers is impressive, but you can fill a lot of containers with $35 DVD players with the money that Pixar will earn from non-US sales of just one of its movies.

The "trade deficit" is so misleading as to be the source of dangerous policy decisions.

see:
http://www.export.gov/sed.html

Thank you. Pointing out that many of the yardsticks used to measure vital statistics these days are outmoded and outdated needs to be done more often.

I'm a proponent of the use of GNP as an indicator. And I'm sure there are many other economic formulas for accurately gauging economic health that are ignored by people whose agendas are political rather than patriotic.

When Oracle sells a $1 million license for its software, the government doesn't even know. There is no SED.

I doubt it. As far as I know when MS sells Windows XP in Europe this is included in trade statistics

When Disney and Pixar ship the master prints of the new movie Cars to their distributor in Japan, they only must declare (on the SED) the value of the film in the cans. That is, a few thousand dollars. They do not have to declare the millions of dollars in expected revenue.

To the extent that the US exports goods that are not shipped on pallets and boxes, but instead are really software and media, or licenses and contracts, the Trade Balance statistic is a totally misleading number.

You may have something there. But if correct, I doubt these entertainment media exports throw off our trade statistics more than 5-10%.

Good post, Buckwheat!

Don't forget all those American companies that "outsourced" their production to Asia to compete with other Asian companies.

A California semiconductor company "outsources" a chip to a Chinese fab. Pays Chinese company 3c for the silicon processing done on $4million of equipment purchased from Applied Materials in Texas or maybe Tokyo Electron. Pays 2c to a Thailand/Malaysia packaging house. Then drop-ships 100,000 of those chips to a Taiwan mfg that pays 10c to the California company...

50% gross margin back to the US. Chinese fab makes maybe $300 profit off of those 100,000 chips. Malaysia co makes nearly nothing.

US company gets $10,000 revenue from the transaction for $5,000 risked -after- it is booked (in other words, little risk.) This "American chip" never saw America, and not sure how this is counted in the trade 'deficit,' or if it even makes sense to be counted.

Chinese company still has big fabs, big capital at risk.

People that think "outsourcing" is a total boon for the foreign companies really need to widen their perspective.