Cross Border Trade Calculations Cut US Trade Deficit with China

President FIEO, while expressing concern on the contraction of exports for the eighth month in succession; a slowdown in net exports of services and larger outflows of investment income payments is expected to widen the current account deficit (CAD) further in Q3, beyond the level of 5.4 per cent of GDP recorded in Q2 of 2012-13 stated that improvement of prospects, both on growth and current account, depends on the action of the Government.

Mr Ahmed stated that while signs of stabilisation in global economic activity have been in evidence in recent months, led by stronger than expected growth in the US in Q3, activity in the euro area continues to be in a contraction mode and given that the HSBC Emerging Market Index rose in Q4 and there is a marginal increase in the global composite purchasing managers’ index (PMI) in December an assessment of the high growth/high disposable income markets be made and the top 20 markets be selected for additional incentives given the  fact that the current account deficit (CAD ) needs to be fed by a capital inflow of about $7 billion a month to fund the gap.

FIEO chief stated that the Ministry of Commerce may consider incentivising cross border value addition services by integrating with the global production chain to move up the value chain with value added services. UN data suggests that China’s bilateral trade surplus with the United States shrinks by 25% on a value-added basis, reflecting the high level of foreign-sourced content in Chinese exports; one-third of the total value of motor vehicles exported from Germany actually comes from other countries, while nearly 40% of the total value of China’s electronics exports come from foreign sources evidencing the increasing importance of value addition services.