THE SKY IS RISING:

Forget About the U.S. Trade Deficit?: The large — and growing — U.S. trade deficit is often viewed as evidence that U.S. companies are not competitive in global markets. But trade statistics tell only part of the story. Joseph Quinlan argues that the business success of U.S. multinational companies abroad is a much more accurate indicator — and he finds that they are doing better in 2004 than they have in a while. (Joseph Quinlan, July 01, 2004, The Globalist)

Lost amid the newspaper headlines of a record trade deficit in April 2004 ($48.3 billion) and a record current account deficit in the first quarter of 2004 ($144 billion) is this: global business and global earnings have never been better for U.S. multinationals.

A more robust global economy — in conjunction with continued U.S. dollar weakness — has sparked a boom in global profits.

Just ask Federal Express, which — helped by soaring international sales — posted stronger-than-expected quarterly results.

One of the most dangerous deficits today is not one of trade — but rather a deficit in understanding how U.S. firms compete and sell products in the world marketplace.

Simply put, American firms compete more through foreign direct investment — they establish a local presence in international markets by operating on the ground — than through arm’s-length trade.

In the first quarter 2004, U.S. affiliates reported record quarterly earnings in 14 countries.

In 2001, for instance, the last year of available data, U.S. foreign affiliate sales topped nearly $3 trillion — roughly three times larger than U.S. exports of goods and services.

Because foreign affiliate sales are not included in U.S. exports, a great deal of global commerce is missing from the reported trade figures.

If possible, fretting about the trade deficit is even sillier than that over the Federal debt.

Posted by Orrin Judd at July 3, 2004 10:33 AM