by Daniel Brouse
May 1, 2025
Donald Trump’s Trade Deficit Calculations Ignore the Real Structure of the Modern U.S. Economy
Donald Trump’s trade deficit claims are fundamentally flawed, reflecting an outdated view of global commerce and overlooking several major components of the U.S. economy. Most notably, his figures exclude the substantial value of U.S. service exports—ranging from financial services and software to entertainment and cloud computing—which now account for a significant and growing portion of America’s global trade footprint.
Even more consequential is the exclusion of the economic activity generated by U.S.-headquartered multinational corporations (MNCs) such as McDonald’s, PepsiCo, and Coca-Cola. These companies earn hundreds of billions of dollars each year through foreign subsidiaries, yet much of this global income is not reflected in U.S. trade statistics. This is due to aggressive transfer pricing, intra-firm transactions, and profit-shifting strategies that shift reported revenues and profits to low-tax jurisdictions abroad—even though the intellectual property, branding, and innovation driving those revenues are created in the United States.
The Key Issue: $8 Trillion in Uncounted Exports
An estimated $8 trillion in U.S. exports go uncounted or undercounted in official trade data due to how multinational corporations structure their operations and internal accounting. Here’s how it works:
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U.S.-based firms often “sell” products, licenses, or services to their own foreign subsidiaries at artificially low internal prices.
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The subsidiary then sells those goods to foreign customers at market prices, making it appear as though the export originated from the foreign country rather than the U.S.
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Meanwhile, intellectual property—like McDonald’s branding, Coca-Cola’s formulas, or Microsoft’s software—is typically assigned to subsidiaries in tax havens like Ireland or Bermuda, masking the fact that the true value creation occurred domestically.
As a result, these massive flows of economic value are excluded from official U.S. export figures, even though they are functionally no different from conventional exports.
The Effect on Trump’s Trade Deficit Narrative
Trump’s administration focused almost exclusively on the visible goods trade deficit, especially with countries like China and Germany, using it as a rationale for tariffs and trade wars. But that narrative was based on incomplete and distorted data. Specifically:
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It ignored the United States’ invisible trade surplus in services and intellectual property.
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It failed to recognize that U.S. MNCs often account for final goods exports elsewhere, even when value creation occurred in the U.S.
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If these hidden exports were properly accounted for, the real U.S. trade deficit would be significantly smaller—perhaps even reversed in some sectors.
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This flawed accounting led to misguided policies like tariffs, which hurt U.S. consumers and global supply chains without addressing the actual structure of the trade imbalance.
The Hidden Reality: The Profits Still Flow Back to the U.S.
Ironically, while profits may be reported abroad, the financial benefits are largely retained or returned to the United States:
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U.S. shareholders benefit through dividends, stock buybacks, and rising equity values.
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Capital gains from these profits are realized and taxed in the U.S., contributing to federal revenues.
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Many MNCs also reinvest abroad-earned profits in U.S. operations, research, and acquisitions, strengthening the domestic economy.
Following the 2017 tax reform, corporations were given incentives to repatriate some of the $1.6 trillion held offshore—further blurring the line between “foreign” profits and domestic benefit.
In summary, Donald Trump’s trade deficit calculations fundamentally misrepresent the true structure of the modern U.S. economy.