Problematical trade statistics

...researchers estimated that $163 of the iPod’s $299 retail value in the United States was captured by American companies and workers, breaking it down to $75 for distribution and retail costs, $80 to Apple, and $8 to various domestic component makers. Japan contributed about $26 to the value added..., while Korea contributed less than $1.

...

Even though Chinese workers contribute only about 1 percent of the value of the iPod, [according to conventional trade statistics] the export of a finished iPod to the United States directly contributes about $150 to our bilateral trade deficit with the Chinese.

How to keep people poor

Lant Pritchett via Arnold Kling

The principal way rich countries disadvantage the poor world is not through unfair trade, or through intrusive and ineffective aid, or by forcing repayments of debts. The primary policy pursued by every rich country is to prevent unskilled labor from moving into their countries. And because unskilled labor is the primary asset of the poor world, it is hard to even imagine a policy more directly inimical to a poverty reduction agenda or to “pro-poor growth” than one limiting the demand for unskilled labor (and inducing labor-saving innovations).

Imports don't exist

Many populists criticize the trade deficit with other countries. Part of this is certainly xenophobia. Because if we merged the other country into ours, the so-called deficit would disappear.

Who cares if New York runs a trade deficit with Pennsylvania? As Adam Smith wrote, "Nothing . . . can be more absurd than this whole doctrine of the balance of trade."

Sheldon Richman expands on these ideas in The Freeman magazine, writing, "In reality, then, there are no imports and exports. There is only what I make and what everyone else makes. ... Few people would want to live just on what they themselves could make."

Once we choose trade over self-sufficiency, we're just arguing about how big the free-trade zone should be. Since trade is always mutually beneficial, the answer is: The bigger the free-trade zone the better.

Why object?

With China eager to lend, America enjoys lower interest rates. Since the Chinese government has decided its citizens should pay higher taxes to finance American borrowing and spending, why should Americans object?

The more difficult question is whether the Chinese are acting against their own self-interest by saving so much and investing in foreign assets. Perhaps they are worried about potential future crises and want a large reserve fund for such a contingency.