Monday, January 28, 2013

Value added export and global trade landscape

The OECD and WTO have come up with trade in value added database covering mostly OECD countries. It presents an entirely different picture of the ongoing trade related debate, especially the huge trade surplus (gross) of China and the charges about currency manipulation (deliberately keeping value of currency low). The RCA, which gives an indication of comparative advantage in export of individual product, is also quite different than what is shown by gross trade figures. Value added data could be a better measure of trade flows.

Source: Oxford Analytics

The new value added database shows that China might not have the as large balance of trade surplus as it appears to be when we look at gross trade figures. In fact,  the US deficit with China appears to be 25% smaller than is suggested by conventional gross trade figures. Surprisingly, Japan's surplus with the US is 60% larger than suggested by gross trade figures. Even more surprising is the revelation that only 4% of the value of an iphone is attributable to China itself, with the rest being imported for final assembly (physical components and technical services).

It will be interesting to see the value added export of Nepal when the database includes Nepal as well.