Deutsche Bank: US Has $1.4t in Trade Surplus Worldwide

The US has a surplus of $20 billion with China and $1.4 trillion with the rest of the world. That’s not a normal trade balance, of course, where the US registered an annual deficit of more than $330 billion with China and about $550 billion with the world last year, but an "aggregate sales surplus" which measures both direct trade and the sales of multinational companies, according to research by Deutsche Bank AG.

Just looking at the goods and services trade deficit is misleading and doesn’t capture the true size of US business interests, according to Deutsche Bank economists. While trade and corporate data aren’t usually combined, if you add up all trade data, sales by US companies in foreign countries and foreign firms in the US, "US companies have sold more to the rest of the world than other countries have sold to the US in the past ten years," writes chief China economist Zhang Zhiwei in the report, Bloomberg reported.

President Donald Trump’s determination to rein in his nation’s trade deficit has put him at odds with the developed world, a stance that undermined an acrimonious G7 summit in Canada at the weekend. China and the US are meanwhile locked in negotiations to stave off a trade war, with Trump threatening to slap tariffs on at least $50 billion in Chinese imports after June 15.

For China, the image of a massive trade deficit with the US "is at odds with the fact that Chinese consumers own more iPhones and buy more General Motors cars than US consumers," wrote Zhang in the report. "These cars and phones are sold to China not through US exports but through Chinese subsidiaries of multinational enterprises."

Instead of a growing trade deficit with China, Deutsche Bank estimates there was a small but growing surplus. The increase reflected rising demand of Chinese households for foreign goods and services, driven partly by the wealth effect of China’s property boom. The sales surplus with China may exceed $100 billion by 2020 if the world’s two biggest economies avoid a trade war, Zhang estimates.

The US also ran sales surpluses with nations including Mexico and Canada but had deficits with Japan and Germany last year, Zhang wrote.

Deutsche Bank used data from the US Bureau of Economic Analysis to estimate overseas sales of US companies through 2015. For more recent sales it turned to multinational companies in the Standard and Poor’s 500 Index that provide sales reports broken down by country and used those to estimate overall sales by American companies in 2016 and 2017.

Outdated US Accounting Methods

German Chancellor Angela Merkel has said trade accounting methods are outdated and need revision. She pointed out that if services were included, the US would run a surplus with Europe. But the numbers are harder to crunch, DW reported.

Merkel on Tuesday struck back at Trump's repeated complaints over the US trade deficit. She said the United States actually runs a current account surplus with Europe—if services are factored into the equation.

She went on to say that the current accounting systems for global trade needed to be updated to also take services into account. "Trade surpluses are calculated in a relatively old-fashioned way nowadays," she told an audience of businessmen at the Christian Democratic Union's Economic Council Conference in Berlin. "If services are included in the trade balance, then the US runs a big surplus with Europe. And the share of services will only grow."

Several German economists have long made similar arguments.

The chancellor also said German direct investment into the US was significantly higher than the other way around.

Merkel's remarks came just days after disputes over trade saw the annual Group of Seven summit end in chaos, as Trump refused to endorse the group's final communique and accused Canadian Prime Minister Justin Trudeau of being "very dishonest" in his condemnation of US tariffs.

Facts and Figures

In terms of goods and services trade alone, the latest available figures from the Office of the United States Trade Representative show:

- The US trade deficit with the EU was $92 billion in 2016 when goods and services were both included in the calculation. The US exported $501 billion in goods and services to the EU and imported $592 billion.

- Broken down, the US had a $137 billion deficit with the EU in the trade of goods alone. It exported $270 billion in goods and imported $416 billion.

- In services trade, the US had a $55 billion surplus. It exported $231 billion and imported $176 billion.

The top services were in professional and management services, intellectual property, travel and education.