The Political Implications of the “Intra-Firm” Trade Deficit

I’m not sure how much ‘value-add’ (what an awful expression) I’ll provide to Kenneth Thomas’ excellent post “U.S. Trade Deficit Largely Due to “Intra-Firm” Trade“, but it’s worth highlighting this key point:

The vast majority of the U.S. $727 billion trade deficit in goods for 2011 is due to “intra-firm” or “related party” trade, that is, trade between two units of the same corporation, according to the U.S. Census Bureau. This is significant because such trade is the most open to companies manipulating the prices between subsidiaries to minimize tax liabilities, usually known as abusive transfer pricing. Moreover, as Stuart Holland argued in 1987, intra-firm trade is also less responsive to changes in exchange rates than is trade between independent businesses, since within an individual multinational corporation each subsidiary will have a specific role to play in its supply chain, which won’t be quickly changed….

As we can see, related party trade (which can mean trade within either a U.S. or foreign multinational corporation) is 27.6% of goods trade, but it represents a whopping 95.0% of the trade deficit.

Between 2002-2010, it averaged 70% – 85% of the trade deficit. What this means is that U.S. companies made a conscious decision to employ non-U.S.-ians in making goods primarily for the U.S. market. This has nothing to do with ‘global competitiveness’, but simply trying to maximize profit extraction from the U.S. market at the expense of U.S. workers.


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