Trade data are set to get a makeover from the World Trade Organization, which is good news because the current method of accounting for the value of trade flows is misleading. Critics of free trade want to describe trade as a conflict between “us” and “them.” But who is “us” and who is “them”? Many products today contain parts that are produced in multiple countries. Official trade data, however, assign the value of those products to the country where the final assembly of the product occurred.

U.S. sales of Apple iPhones, for example, are said to have contributed $1.9 billion to the 2009 U.S. trade deficit with China. But when the intermediate stages of production are accounted for, it turns out that China accounts for only 3.9 percent of the iPhone’s contribution to the U.S. trade deficit. Germany, Japan, and South Korea comprise much larger shares. [“Trade in Value Added: What Is the Country of Origin in an Interconnected World?” by Andreas Maurer, World Trade Organization, April 14, 2011.]

WTO’s “Made in the World” initiative aims to identify more accurate ways of accounting for the value of trade flows between countries. Hopefully it will help improve the quality of debate about trade policy. For more on this topic, see Dan Ikenson’s post “Lies, Damned Lies and Trade Statistics,” published December 16, 2010 at Cato-at-Liberty.