Facts About
Modern Manufacturing
Manufacturing Accounts for a Smaller Share of the Trade Deficit in Value-Added Terms
Since the 1990s, international trade in final goods has increasingly been replaced by trade in intermediate inputs as a result of the fragmentation of production processes. This trend complicates traditional customs-based trade statistics, which record the full value of trade flows on a gross rather than net value-added basis to measure a country’s competitiveness and the importance of trade to economic growth.
The issue with traditional trade statistics is that as intermediate inputs cross national borders for further processing, their values are implicitly counted multiple times. These statistics thus overstate the domestic value-added content of exports, making it difficult to identify the real contribution exports are making to a country.
When measured in value-added terms—i.e., looking at countries’ net contributions—manufacturing’s 2009 trade deficit shrinks significantly and the surplus in services turns into a deficit. The reason is that foreign services facilitating trade in manufactured goods (e.g., business services, transportation, distribution, and finance) are categorized as manufactured imports in traditional terms but as service sector imports in value-added terms.