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How Do Corporate Inversions Affect the International and National Economic Accounts?

Recently, a growing number of articles in the media have noted U.S. corporations announcing that they intend to move their headquarters overseas.  This practice is known as a corporate inversion, which occurs when a U.S. corporation that is currently the ultimate owner of its worldwide operations takes steps to become a wholly owned subsidiary of a foreign corporation.

The Bureau of Economic Analysis (BEA) has published a BEA Briefing in the Survey of Current Business that discusses how corporate inversions can affect major aggregates in the international and national economic accounts, including an estimate of the size of the impact of inversions on related BEA statistics.

Below are some highlights from the Briefing. For the full analysis and to view the impact of inversions on activities of multinational enterprises (AMNE) statistics see the BEA Briefing.

International Statistics

  • The foreign direct investment position in the United States—which comprises the direct investors’ equity in, and net outstanding loans to, their U.S. affiliates—generally increases after an inversion because the inverting U.S. corporation becomes an asset of a foreign investor.
  • The measures of multinational enterprise activities—which include data items such as employment, capital expenditures, value added, and research and development (R&D) expenditures—also generally increase as a result of inversions.
  • Corporate inversions may also affect BEA’s U.S. direct investment abroad, or outward direct investment, statistics if the U.S. multinational enterprise transfers the ownership of some or all of its foreign affiliates to its new foreign owner.

National Statistics

  • Corporate inversions would generally reduce gross national income, that is, income resulting from the current production of goods and services by U.S.-owned labor and capital.
  • Corporate profits, the portion of the total gross national income earned from current production that is accounted for by U.S. corporations, would also generally be reduced by inversions.

Gross domestic income, which is income resulting from the current production of goods and services in the domestic economy, would not be affected by inversions.

December 2014 Trade Gap is $46.6 Billion

The U.S. monthly international trade deficit increased in December 2014 according to the U.S. Bureau of Economic Analysis and the U.S. Census Bureau.  The deficit increased from $39.8 billion in November (revised) to $46.6 billion in December, as exports decreased and imports increased. The previously published November deficit was $39.0 billion. The goods deficit increased $6.9 billion from November to $66.0 billion in December. The services surplus increased $0.1 billion from November to $19.5 billion in December.

Monthly Balance on Goods and Services Trade Feb5

Exports
Exports of goods and services decreased $1.5 billion in December to $194.9 billion, reflecting a decrease in exports of goods. Exports of services increased.

  • The decrease in exports of goods was more than accounted for by a decrease in industrial supplies and materials. An increase in capital goods was partly offsetting.
  • The increase in exports of services reflected increases in transport, which includes freight and port services and passenger fares, in financial services, and in travel (for all purposes including education).

Imports
Imports of goods and services increased $5.3 billion in December to $241.4 billion, mostly reflecting an increase in imports of goods. Imports of services also increased.

  • The increase in imports of goods mostly reflected increases in industrial supplies and materials and in automotive vehicles, parts, and engines.
  • The increase in imports of services mostly reflected increases in transport and in travel (for all purposes including education).

Goods by geographic area (seasonally adjusted, Census basis)

  • The goods deficit with Canada increased from $1.6 billion in November (revised) to $3.3 billion in December. Exports decreased $0.8 billion to $25.8 billion and imports increased $0.9 billion to $29.0 billion.
  • The goods surplus with South and Central America decreased from $4.3 billion in November to $2.6 billion in December. Exports decreased $0.7 billion $14.8 billion and imports increased $1.0 billion to $12.2 billion.
  • The goods deficit with Germany decreased from $6.3 billion in November to $5.6 billion in December. Exports increased $0.1 billion to $3.9 billion and imports decreased $0.6 billion to $9.6 billion.

Read the full report.

2014 Trade Gap is $505.0 Billion

The U.S. international trade deficit increased in 2014, according to the U.S. Bureau of Economic Analysis and the U.S. Census Bureau. The deficit increased from $476.4 billion in 2013 to $505.0 billion in 2014, as imports increased more than exports. As a percentage of U.S. gross domestic product, the goods and services deficit was 2.9 percent in 2014, up from 2.8 percent in 2013. The goods deficit increased from $701.7 billion in 2013 to $736.8 billion in 2014, and the services surplus increased from $225.3 billion in 2013 to $231.8 billion in 2014.

 

Balance on Goods and Services Trade feb5

 

Exports
Exports of goods and services increases $65.2 billion, or 2.9 percent, in 2014 to $2,345.4 billion. Exports of goods increased $42.3 billion and exports of services increased $22.9 billion.

  • The largest increases in exports of goods were in capital goods ($15.8 billion), in consumer goods ($10.1 billion), and in foods, feeds, and beverages ($8.1 billion).
  • The largest increases in exports of services were in travel (for all purposes including education) ($5.9 billion), in charges for the use of intellectual property ($5.7 billion), and in financial services ($5.4 billion). 

Imports
Imports of goods and services increased $93.9 billion, or 3.4 percent, in 2014 to $2,850.5 billion. Imports of goods increased $77.5 billion and imports of services increased $16.4 billion.

  • The largest increases in imports of goods were in capital goods ($36.8 billion), in consumer goods ($25.2 billion), and in automotive vehicles, parts, and engines ($19.0 billion).
  • The largest increase in imports of services were in travel (for all purposes including education) ($6.7 billion), in other business services ($5.6 billion), and in transport ($3.7 billion), which includes freight and port services and passenger fares.

Goods by geographic area (Census basis)

  • The goods deficit with China increased from $318.7 billion in 2013 to $342.6 billion in 2014. Exports increased $2.3 billion to $124.0 billion, while imports increased $26.2 billion to $466.7 billion.
  • The goods deficit with the European Union increased from $125.4 billion in 2013 to $141.1 billion in 2014. Exports increased $14.5 billion to $276.7 billion, while imports increased $30.2 billion to $417.8 billion.
  • The goods deficit with OPEC decreased from $68.0 billion in 2013 to $49.4 billion in 2014. Exports decreased $2.0 billion to $82.7 billion, while imports decreased $20.6 billion to $132.1 billion.

Read the full report.