Answer by Zachary Karabell, Money Manager, Commentator, Author of The Leading Indicators, A Short History of the Numbers That Rule Our World, on Quora,
Trade deficits are one of the hot button issues in our world today, especially the $300 billion plus trade deficit between the United States and China. A negative trade balance is widely perceived as a sign of national weakness and a liability in the game of nations.
That may have been true in an era where countries were more like economic islands, with borders protected by high tariffs and currencies that were difficult to trade. But in our world today, where goods and capital flow more freely, and where many goods are made not in one country but several, the entire concept of a trade deficit makes less and less sense.
In fact, the way that these numbers are assembled, with every finished good assigned to one country where it underwent its last “substantial transformation” misses the degree to which many goods have parts from all over the world and that the factory where it is finally assembled in only one stop on a long road. Even more, trade in goods is increasingly overshadowed by trade in services, and those are much harder to measure.
As many have recognized, including the OECD and the Asian Development Bank, we need ways to measure these flows, and that will take time and money. As of now, trade numbers matter far less than we think, and we should emphasize them far less than we do.