Tuesday, October 01, 2019

US foreign affiliates sell most output outside the United States

The majority-owned foreign affiliates of American multinational enterprises sell most of their output outside the United States according to data from the US Bureau of Economic Analysis.

Somebody should dare tell President Trump that the US may have a trade surplus with China!.

Chinese consumers own more iPhones and purchase more General Motor cars than their US counterparts and these cars and phones are sold to China not through US exports.

In 2016 — the latest period for which destination data are available — 11% of affiliate sales went to US parent companies, while 59% of sales went to the local market of the host country and 30% went to other foreign countries.

Many firms seek to maintain operations close to their customers to gauge preferences and tastes that may differ from US consumers and it can make sense in emerging and developing markets to take advantage of lower production costs.

When parent companies shift profits between affiliates, they are not only targeting sales made in a country’s local market but also on exports to other foreign companies.

Data for the 3 main European corporate tax havens — Netherlands, Ireland and Luxembourg — are heavily distorted.

Irish affiliate sales at $351bn were 3rd highest in the world after Singapore’s $364bn. Ireland at $70bn also had the highest value in the world for exports to US parents while $59bn in local Irish sales is also ridiculous.

This year Apple had to publish accounts for its Irish shell company Apple Operations International — “Irish” sales from Europe, Middle East, Africa and India were at $137bn in 2017 and $155bn in 2018.

Note here that 84% of R&D spending is in the United States

US trade deficit with China?

In 2017 the US had a goods deficit of $375bn (Chinese customs data suggested that the balance was $276bn) with China and a services surplus of $41bn resulting in a total deficit of $334bn. 

In the US-China dispute, Donald Trump not only ignores the services surplus but also US affiliates' Chinese sales of $376bn (this doesn't include Hong Kong affiliate sales of $140bn).

The net exports/imports value with US parents was a mere $2bn in 2017 while US affiliates of Chinese firms had sales of $34bn.

China's exports of Apple iPhones to the US were $31bn in 2018 but the most valuable Asian components in the iPhone come from Japan and South Korea while the Chinese value-added is less than 10% of the export cost. Nevertheless, the iPhone total export value of $31bn was in China's goods exports value.

Deutsche Bank economists said in 2018, "Assuming 10% annual growth for US sales in China by 2020 (we saw 12% annually over the past decade) and 5% growth for China's exports, by 2020 the US should have an aggregate sales surplus of more than $100bn with China. By then China will likely have become the largest market for US subsidiaries, accounting for 15% of all their sales abroad."