Is the U.S. Trade Deficit with China Exaggerated? It Depends What Story the Media Are Trying to Sell

For many years we regularly saw news stories, like this Washington Post piece, telling us that the official data on the bilateral U.S. trade deficit was hugely exaggerated. The argument was that we count the full value of a final good imported from China in calculating our trade deficit, even though much of the value added came from other countries.

The classic case is an iPhone exported from China to the U.S. We would count the full value of the iPhone as an import from China even though the...