Inconsistencies in Reporting U.S. Trade Data?

by: Mark J. Perry

The BEA released data Tuesday on the "U.S. Net International Investment Position at Yearend 2010" with these highlights:

  • The U.S. net international investment position at year end 2010 was -$2,471.0 billion, as the value of foreign investments in the United States ($22,786 billion) continued to exceed the value of U.S. investments abroad ($20,315 billion).
  • There was a -$74.6 billion change in the U.S. net investment position from yearend 2009 to yearend 2010 that primarily reflected net foreign acquisitions of financial assets in the United States that exceeded net U.S. acquisitions of financial assets abroad.
  • Foreign acquisitions of financial assets in the United States were $1,245.7 billion in 2010, up substantially from $335.8 billion in 2009.
  • U.S. acquisitions of financial assets abroad were $1,005.2 billion in 2010, up substantially from $139.3 billion in 2009.
This analysis seems to depart from the way the BEA calculates trade data in the following way:

1. When U.S. imports (cash out) exceed exports (cash in), it gets reported by the BEA as a "trade deficit" because the accounting logic is based on following the cash, and not the goods. Because the "cash out" for imports is greater than the "cash in" for exports, there is a "net cash outflow" from the U.S. to our trading partners, and we call this a "trade deficit."

2. When the BEA calculates the international investment position, it seems to depart from following the cash, and switches to following the assets. The fact that the value of foreign investments in the United States ($22,786 billion) exceeds the value of U.S. investments abroad ($20,315 billion) means that there has been a net inflow, or capital surplus, into the U.S. of $2,471 billion. And yet the BEA reports this as a negative -$2,471 billion because of the switch from following the cash (+$2,471 billion inflow) to following who ends up with the assets.
Likewise, the BEA reports a -$74.6 billion annual change in the U.S. net investment position for 2010 because of a $74.6 billion capital inflow, or as the BEA stated because "net foreign acquisitions of financial assets in the United States exceeded net U.S. acquisitions of financial assets abroad" last year.
Why the switch from following where the cash ends up (and not goods) when reporting trade data for the U.S., to following where the asset ownership ends up (and not the cash) when reporting the net international investment position for the U.S.?
If the government reported trade statistics the way it reports our net investment position, the BEA would follow where the goods end up and not where the cash ends up. In that case, it seems like the BEA would report our "trade deficit" instead as a "trade surplus." Reason? We acquire more output produced in foreign countries in a given quarter or year than the output our trading partners acquire that was produced in the U.S. during that time period. In terms of which country ends up with the most "stuff" on net, the U.S. would be running a "trade/stuff/output surplus," and not a deficit. It's only because the BEA tracks which country ends up with the most "money" on net, and not the most "goods" on net, that the BEA reports a "trade deficit" for the U.S.

Alternatively, if the BEA reported the U.S. net international investment position the way it reports trade data, shouldn't it be reporting a positive $2,471 billion net investment position overall and a positive $74.6 surplus for 2010?

The BEA is apparently reporting the the U.S. currently has both a "trade deficit" and an "international investment" deficit? How can that be?