Global commerce not only in trade

America's nagging and persistent trade deficit is causing us to lose sight of a larger and more important issue: Trade is only a small part of International commerce and becoming smaller.

Consider the U.S. commercial relationship with the 12 nations of the European Community. In 1988, the last year for which figures are available, the U.S.-EC commercial relationship totaled $1.1 trillion. But only $140 billion - less than 15% - was in trade.

The U.S. sold $57 billion to the EC and the EC sold $83 billion to the U.S., resulting in a $26 billion trade deficit for the U.S. But in looking at the overall commercial relationship - including trade, direct investment, the sales of multinational corporations and barter - the U.S. economic penetration in the EC and the EC's penetration in the U.S. was about the same, with an edge to the U.S.

For example, in 1988, U.S. multinational corporations earned $400 billion from their affiliates operating in the U.S. Thus, U.S. multinationals outperformed European multinationals by $100 billion.

So the idea that Americans are not good at doing business overseas is simply not true. We are no so good at trade, as shown by our persistent trade deficit. But we are clearly among the best in the world at doing business in foreign countries - as shown by the success of IBM in Japan or Ford and General Motors in Europe.

It is also important to note that in 1988 the U.S. invested $122 billion in the EC while the EC invested $158 billion in the U.S. - for a total of $280 billion, exceeding trade flows by $140 billion.

But the fastest growing part of international commerce is barter, or what some people call "counter-trade". Barter is mostly invisible and not easy to track. However, the U.S. Department of Commerce estimates barter equals 20% to 30% of total U.S. foreign trade.

Barter is increasingly important for many Third World countries, Eastern Europe and the Soviet Union, which have non-convertible currencies and a shortage of foreign exchange.

A good, recently publicized example of barter is the agreement between Pepsico and the Soviet Union. Pepsico receives profits from its Soviet operations in Stolichnaya vodka, which is easy to sell for cash in Western Europe and the U.S.

So, international commerce is much bigger than just trade. In fact, because the other parts of international commerce are growing much faster than trade, trade is becoming a smaller and smaller piece of a larger and larger pie.

Fortunately, American businesses are very good at some aspects of international commerce - and getting better at trade. This is another reason why the U.S. is well-positioned to take advantage of the global boom anticipated in the 1990s by many economists.