Disaggregating Global Imbalances

by Reihan Salam

Earlier this month, Andrew Batson of the Wall Street Journal wrote a blockbuster article on how we calculate trade deficits, and he draws on an October speech by the director-general of the WTO Pascal Lamy:


“What we call ‘Made in China’ is indeed assembled in China, but what makes up the commercial value of the product comes from the numerous countries,” Pascal Lamy, the director-general of the World Trade Organization, said in a speech in October. “The concept of country of origin for manufactured goods has gradually become obsolete.”

Mr. Lamy said if trade statistics were adjusted to reflect the actual value contributed to a product by different countries, the size of the U.S. trade deficit with China—$226.88 billion, according to U.S. figures—would be cut in half.

Add this to the case against GDP fetishism. GDP is a useful but crude tool. It is best used for gross comparisons and long-term comparisons, and as a way to think about the amount of value that a government can extract from the economy in taxes. Consumer surplus and psychic income can’t be extracted by states to yield tax revenues and the efficacy of government isn’t captured in GDP. And now it seems that, at the edges at least, we might be miscalculating GDP by miscalculating the real size of our trade imbalances.

On this particular question, I’m fascinated by how much of the wealth created in today’s advanced market economies revolves around copyright and patent protections that, in my view, are at best necessary evils. Crudely, you could say that while the manufacturing hubs assemble the physical stuff, the core brain economies provide the IP software layer and the, um, pizzaz? Swagger? Cache or positionality? Brand authenticity seems to be about managing and husbanding invented scarcities. Much of our relative affluence depends on this process. Governments raise tax revenues off of firms that do little more than manufacture a shortage of public esteem. 

 Geoffrey Miller offers insight into this strange process in his wonderful, quirky book Spent: Sex, Evolution, and Consumer Behavior.

Miller’s thesis is part of why I admire those who are not “neurotypical.” To see through hierarchies and status distinctions, e.g., to become a threshold earner at a relatively low level of work effort, is in some sense to have successfully cracked the code of modern urban life. 

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.