The US trade deficit with China is much smaller than official data suggest, according to a year-long study that transforms the global picture of trade imbalances between countries.

In a joint study, the Organisation for Economic Co-operation and Development and the World Trade Organisation have for the first time highlighted the flaws in labels such as “made in China” and “made in Germany” by tracking the origin of components and services rather than final products.

The OECD and WTO said their investigation into how goods and services are actually produced highlighted the folly of trade barriers. Angel Gurría, head of the OECD, said: “We have to think about goods and services as ‘made in the world’, forcing a radical change in how we need to look at trade flows.”

According to the joint study, the US trade deficit with China in 2009 was not $176 billion but $131 billion – or 25 per cent lower – because much of the value of “Chinese” electronic exports include parts sourced from other countries. – (Copyright The Financial Times Limited 2013)