Why Britain’s The Winner In This Online International Trade Stuff
SO we’re told by a report about international online trade: the UK has the world’s largest trade surplus in it. Woo Hoo!
Makes up for the fact, well, just a little bit, that we’ve been running trade deficits for as long as most of us have been alive. Here’s the good news:
The value of online exports in six of the top e-commerce markets will grow fivefold to $130 billion by 2020, with Britain currently generating the biggest online trade surplus by selling more goods abroad, research showed on Monday.
It’s just that, well, I didn’t believe this. So I went off and got a copy of the report and asked the people who had written it quite how they had come to this conclusion.
The basic answer, after we’d clarified the terms they were using, is that they counted the value of packages flowing in and out of the UK. More value was flowing out from us to foreigners and that’s what the trade surplus was.
Hmm. OK, maybe, possibly, that works. But it doesn’t really, not in the way that an economist looks at things. To an economist money flowing out of the country for something means that that something is an import.
And in their definitions of this online trade the consultancy has used those parcels. And by that definition they say there is £ 7 billion of trade and we’ve got that £ 1 billion trade surplus.#
But here’s the thing: everything Amazon sells to us is sold to us from Luxembourg. Sure, it comes from a warehouse in the UK but the actual invoice is from Luxembourg….and that’s where the money goes too. And Amazon’s sales in the UK are something like £4 billion a year. So we don’t really, in the proper sense, have a trade surplus here at all. And if we add in services then it gets worse again: for all of Google and Facebook’s ads are sold into the UK from Ireland. That’s money going out and is thus an import. And that advertising, added to Amazon, is larger than the whole rest of the market put together.
We’re not therefore running a trade surplus in online sales.
The lesson of this is of course that you shouldn’t believe what you read in the newspapers.