As I began the process of updating my analysis of the effect of population density on U.S. trade data for 2007 and 2008 (possibly for a 2nd edition of Five Short Blasts), something immediately came to mind that I’ve never really addressed – the question posed in the title of this post. You may think the answer is obvious – the trade deficit is simply the difference between exports and imports.
But consider this: unlike every import into the U.S., which is paid for in cold hard cash, a lot of our exports are given away for free – essentially aid – primarily food, medicince and military hardware, but many other things as well. However, for trade purposes, they are booked at their full value as exports and then the federal government accounts for the losses elsewhere in the budget – as foreign aid, as military expenditures or whatever.
For example, take a look at the data for every country in Africa. You’ll see that we run a very nice trade surplus with most of these countries. Are these poor African nations really paying for all this stuff – lots of it food and medical supplies, or is it just aid? I’m not saying that we shouldn’t be providing aid, but I am saying it’s disingenuous for free trade cheerleaders to hold up these exports as proof of the benefits of free trade.
Or take a look at the trade data for Iraq and Afghanistan. Are they really paying for all the military hardware, or is it really paid for by American taxpayers to prop up their regimes? Again, I’m not criticizing the foreign policy, but pointing out that our export data may not be as rosy as many would like you to believe. (As though exports that fall so far short of imports is in any way a “rosy picture” of our trade situation!)
So how much of our exports are really “exports” in the sense of trade (buying and selling) and how much are give-aways that would never happen otherwise? Is it a significant fraction of our exports? Is it possible that our 2008 trade deficit was really over a trillion dollars? Two trillion dollars? I have no way of knowing. It would take someone with access to very detailed federal spending data, and with lots of time to spend, to do that calculation. But it’s safe to say that our trade deficit is significantly understated as a result of counting aid and give-aways as exports.