Trade and GDP

I’ve been explaining to my Economics students that imports are normally deducted from GDP, as they are actually cases of our nation spending money in another country to increase their total output. Now I read that the US Government has not been deducting all imports in its calculations.

All that offshoring work? It’s not deducted from the price of the final good, which could be a computer repair bill, an x-ray evaluation, or a tax preparation. That means the productivity of another nation has been snuck into our own data. Goods that have been assembled here from parts produced in other countries also haven’t had the prices of those imports deducted, so that’s another fudge that makes our GDP and productivity look much larger than it actually is.

This means that increases in GDP may be illusory: they could just be indicative of more offshoring and importing rather than actual increases in productivity at home. The next time a reporter has a gee-whiz story about GDP increasing, take some time to see where those numbers came from.

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