| In
addition to an article in BusinessWeek
June 7, 2004 edition by Laura D'Andrea Tyson, this is another
article from McKinsey Consulting about why US citizens and
government should not worry about its high deficit. Here I put
the quotes of some of the key points of the article from McKinsey.
Just as usual, McKinsey gives us a nice article to read...(But,
I am so sorry that I am too lazy to paraphrase the quotes...)
A Silver Lining in the US Trade Deficit
Original
Article By
Diana Farrell, Sacha Ghai, and Tim Shavers (March 2005)
Summary/Quotes
1.
"The record-breaking US current-account deficit has prompted
calls from protectionists to slow the flood of imports. This
response may be understandable, but it is still misguided,
given that a large and growing share of the deficit simply
reflects the international reach—and success—of
the strongest US companies."
"When a US carmaker manufactures vehicles in Mexico,
it sells many of them to Mexican consumers; the resulting
profits appear in the current account as a positive income
flow.2 In addition, these companies use technologies and components
produced in the United States, thereby lifting US exports.
At the same time, vehicles assembled abroad and shipped back
to the United States count as imports, despite the fact that
they are produced by US companies."
2. "Instead of adopting protectionist legislation to
'correct' trade imbalances, it would make more sense for the
government to update the way it calculates the trade balance."
"The current account takes a residency-based view of
trade—that is, it measures the physical flow of goods
and services across a nation's borders, regardless of the
nationality or the ownership of parties on either side of
the transaction. In the 1940s, when national balance-of-payments
accounting methodologies were created, few companies had operations
outside the home country—imports were goods produced
by foreign companies, exports by domestic ones."
"This categorization no longer holds true. A growing
number of companies have expanded abroad, setting up foreign
affiliates. In the national balance of payments, any exchange
of goods, services, or income between a foreign affiliate
and its parent company, other US companies, or consumers is
counted as an export, an import, or an income flow."
3. "In the light of these factors, the view that today's
record current-account deficit reflects a weak economy and
spells doom for the nation is simplistic.The revenues of the
foreign affiliates of US companies totaled some $2.7 trillion
in 2002—roughly three times the value of exports from
the United States "
|
