Trade in Value Added

Why It Matters

TiVA reveals the true distribution of economic value across global supply chains, enabling more accurate trade‑policy and tax decisions and reducing misinterpretations of trade balances.

Key Takeaways

• Traditional gross trade inflates values by double‑counting intermediate goods.
• TiVA isolates each country's actual value added in global supply chains.
• Example: German engine $15k, Korean car $50k shows net contributions.
• TiVA built from multi‑country input‑output tables linking bilateral flows.
• Policymakers use TiVA to assess trade deficits, integration, tax impacts.

Summary

The episode explains that conventional trade statistics record gross shipments, obscuring the true economic contribution of each nation. Host Jim Tebrake and trade‑statistics specialist Eric Strassner introduce Trade‑in‑Value‑Added (TiVA) as a framework that attributes the actual value created by each country along a product’s supply chain.

TiVA separates the value added by each participant, avoiding double‑counting of intermediate components. Using a German‑Korean car example, Germany’s engine is valued at $15 k while Korea’s final vehicle sells for $50 k; TiVA assigns $15 k to Germany and $35 k to Korea, revealing a more nuanced trade balance. The indicators are derived from multi‑country input‑output tables that combine national supply‑use data, bilateral trade flows, and other industrial statistics.

Strassner emphasizes that “TiVA tells a cleaner, crisper story” about who truly benefits from globalization. He notes that the methodology can also capture services such as design work embedded in the final product, further refining the picture of global value creation.

For policymakers, TiVA reshapes assessments of trade deficits, informs trade‑policy negotiations, and guides tax decisions by pinpointing where value is generated and captured. Businesses and investors gain a clearer view of supply‑chain dependencies, helping them manage risk in an increasingly interconnected economy.

Original Description

Headline trade figures don’t always show where value is created. In this episode of The Economy – How Do You Measure That?, host Jim Tebrake speaks with Erich H. Strassner about Trade in Value Added (TiVA), which traces where value is created along global supply chains and provides a clearer view of global linkages and how economies are connected. Learn how it differs from traditional trade data and why it matters.