When I left Merge Global in 2003, I brought the databases I had developed there with me and formed QuERI-International to keep these long time series, consistent, data sets alive.  Since then I've improved the models and expanded the coverage until today I want to pass them on to other organizations that can maintain and use these sets of data on industrial and trade for research into the future o the global economy.  Global Insight, IHS Markit, has maintained some earlier version of the original data developed at DRI and in a joint venture with WEFA as the World Industry Service without adding much to its structure.  After leaving Merge Global, the data was placed for a few years up on the Oxford Economic Forecasting system as a proprietary data set until they decided they wanted to do it all and kicked me off the system but given that the categories are similar if not identical to the original data on the system decided they might peak at the QuERI data.  I see they say that there system is the only fully integrated global model of industrial data. So I thought it might be nice to get a good idea of what the QuERI Global Model does cover and how it can provide useful insights into the changing structural patterns of demand in the world economy in the Post-Covid world.

​​Everything You Wanted to Know About the QuERI Global Databases and Methodologies—One of the Largest, fully integrated, Global Trade and Industry Data sets covering 72 countries for more than 400 commodities over the period 1990 - 2030
IN a few weeks, QuERI-International will make available to governments, research institutes, educational institutes, and private companies with the need and skills to use a global data base covering 72 countries at the ISIC3 level of detail for industrial activity, market demand, international trade, private consumption, investment, employment, prices, and main macroeconomic components in a complete form at a nominal price. Given the complexity of the data and the consistency developed over the nearly forty years of full development, this primer was prepared a few years ago to explain the methodology and approach.  For more information, contact me at querieconomics@gmail.com.
1. Where does the data come from?  
International data on industrial activity and trade comes from many different sources.  The problem is that it is often out of date, incomplete, and not detailed enough to allow companies to link operational and performance to market conditions in the countries they are operating in.  Solving this problem of getting baseline estimates that are both reasonable, i.e. tied to known information even if not exact, up to date, i.e. close to the current year and with forecasts into the next few years, and in sufficient detail to be linked easily to company products is hard.  QuERI solves the problem using an integrated set of global models linking industrial production within a country through an input-output model for the country so that demand for steel is related to growth in demand for automobiles, trucks, construction, etc.  Production of steel, for example, is closely tied to demand for steel from all sources of demand -- sales to other companies and final consumption demand (quite limited for steel, but significant for some steel products), it is also tied to foreign demand (exports), and usually is negatively impacted by imports of competing products. 
 
2. Achieving Consistency of Industrial Classifications – Actual & Estimated Data 
Accuracy is a more difficult question to answer since even government data is often inaccurate. Actual UNIDO data is generally available with missing data for most countries for manufactures at the ISIC3 detail.   We insure as much accuracy in the estimates as possible by using known data to scale more detailed  estimates derived from detailed (NAICS 6 level IO models) to available data from UN and country sources.  What international data we do have at the NAICS 6 level of product detail (covering more than 400 individual products) is international trade data.  At a somewhat lower level of detail we have international data on production of manufactures and some services, at the ISIC 3 level of detail (about 120 commodities) from UNIDO*.   Production data on services depends upon UN Standard National Account data.  To get down to the NAICS 6 level of service detail we use detailed country-specific IO models.  
 
 
3. How can you get to NAICS 6 level when the data for 72 countries at that level of detail barely exists for only a few countries and how can you insure consistency across countries?
There is no simple way to get to the detail needed for useful forward projections without using a framework for linking industries together through their relationships to one another and to the economy as a whole.  Input-Output models were first developed in the 1930's once sufficient data on the economy became available.  Developed by Professor Wasilly Leontieff these relationships were used strategically during the World War II to suggest targets for bombing that would slow or halt German war production.  As a result the Allies bombed the German ball bearing plants rather than the truck and tank plants as the Generals had first suggested.  Since then IO models have evolved and are available for many countries -- rich and poor.  Models, however, are developed over many years and with a frequency of around 5 years between releases.  There may, however, be 10 years between the date of the current model and today's date.  The 2002 US IO model is the only one now available at the NAICS 6 level of detail.  Annual models are estimated at a higher level of detail by the US BEA, but are simply based on limited information and estimates drawn from scaling rows and columns (balancing what is the known production of a commodity with the known demand for the commodity).  
QuERI has developed a  variant of this approach to estimate models for all countries based on a standardized US detailed IO model (430 rows).  Column totals are aggregated to the core model's 63 industry groupings (ISIC2 categories) and to vectors covering investment (63 industry groups), 16 private consumption spending categories, and 4 primary government consumption categories.  All of the columns are derived from the core, global econometric forecasting model.   Differences between countries in terms of consumption patterns (rows) are based on ratios between the known estimates of apparent consumption and the base model's estimate of apparent consumption. Using a balancing approach then individual differences between countries -- rich or poor, large or small-- are accounted for in the IO model's structure.  These adjusted models cover the periods 1998 through 2010 for all 72 countries.  This allows for a pure estimate of market demand and production by NAICS 6 categories (410).  
 
4.  What are the risks from this approach?
There are risks to assuming that the production and market demand estimates are precise. There's some precision at least in terms of total market demand and production at the ISIC 3 level of detail.  This level of industrial detail is only available for manufactures and with a lag that often stretches for several years.  Consistency across countries is assumed primarily because of the classification into a standard international definition, but it is likely that many of these sectors are approximations only.  Often, as not, for many countries no data is available despite the fact that exports do exist thus suggesting there is production.   Production data for the US is through 2011, but for most countries it is through 2009.  Forecasting models are then used to extend UNIDO or UN data through the current year.  To be absolutely clear we can't guarantee the accuracy of the raw government data which is, like GDP, based on a sample of sales data collected from industries.    No government provided data is precise as attested by the fact that Gross Domestic Product is itself just a sample estimate from limited information and is subject to full revisions sometimes years later.
What we can say about the estimates are that they are done in a consistent, and quite reasonable way.  They force estimates to line up to known information on production and trade where available.   QuERI country IO models are based on a detailed US IO model adjusted for differences in consumption patterns across countries.    For example, the changing share of computers in purchases of companies is reflected in the changing percentage of spending within intermediate demand, investment, government, and private consumption vectors.     As a result we are re-balancing the IO between rows and columns to insure consistency and it is this structured approach to measuring likely market demand that is the greatest strength of the QuERI model and data sets.
 
5. Why is this so special?  What's new about it?
There are many different levels of data availability.  The most detailed data that is easily available is foreign trade data.  Export and import data is available at the 6 digit Harmonized Code detail from the United States Commodity Trade Database.  It is generally up to date (current data is through 2011), but there are lapses.  Some countries simply don't report frequently enough, but if your company is looking for something that describes at least a part of the market in any market in the world you should be able to find it there.  
The problem, however, is that it misses what might be a very large market.  It doesn't provide any intelligence on which industries are buying the product or the potential of these "customers".  The only way to get at that is to do a survey of the market, but as any company doing the survey will tell you without knowing how large the market was at one time and it's relationship to the smaller survey sample, you can't get down to this level of detail with any more accuracy than simply making a guess.  
The QuERI data was developed to answer the larger question -- what is the "potential" size of the market.  Trade covers only a small portion of the market for most countries.  And while production and trade data together might be found, production data is usually out of data and difficult to interpret.  QuERI solves the problem by combining data from multiple sources and then processing it through a structured IO model to create pure estimate of likely or potential demand irrespective of the source of supply (domestic or international).  By using more detailed IO relationships then estimates can be developed that are more detailed than available from government sources, but which are based on a rational methodology that can be defended because the underlying relationships between buyers and sellers can be understood.  Further because it is a detailed build-up from the likely buyers, it splits estimates into four primary areas of demand -- intermediate, investment, government, and private consumption. 
 
6.  Is there an underlying model to explain differences across countries?
Countries move through stages of development.  This idea was proposed by W.W. Rostow that there are five stages of development:   

• Traditional society -- with limited technology and poorly developed agriculture;
• Pre-conditions to "take-off" - new technologies allow more production, agriculture becomes more efficient allowing shifts of more people to cities and villages, development of market system;
• Take off -- manufacturing starts to allow a rising standard of income, exports and trade expands, new basic industries like textiles and apparel become concentrated in a few countries, but gradually technologies spread leading to new trade opportunities;
• Drive to maturity -- new technologies are developed, new products, consumer spending and life styles improve, new transportation allows longer distance trade and distributed production;
• Age of mass consumption -- rich, socially developed societies, mass consumption allows a higher standard of living for more people, detailed trade networks link countries, technologies are transferred, manufacturing is dispersed, labor costs equalize.

But Rostow's stages fail to take into account shifting patterns of trade and industrial development.  Rich countries may not remain always rich and patterns of production of finished goods will in time give way to a larger and more important service sector.  International trade may actually reduce living standards as poor countries substitute production and traded goods in rich markets reducing the flow of money and lowering wage rates.  Where Rostow's theory always assumed that the final stage is a steady, but slower period of growth or at least stable wealth, we have observed as globalization has spread that it may also reduce living standards and lead to stagnation or even recession.  
QuERI models are based on a pooled-cross-sectional econometric model.  This allows countries of different stages of development to be included in the model so that the coefficients measuring relative wealth (macro variables like per capita GDP) and market size (measured by urban population size) allow forecasts to reflect changing wealth and country size.  Models include other variables that are less generalized and more directly related to the dependent variable such as imports, exports, intermediate demand, final demand and prices.  Unlike time series models based on a single countries experience, pooled models take the generalized experiences of many countries -- from poor to rich -- into account when developing coefficients.  Additional elements allow for some variables to be more specific to one group of countries while others are allowed to reflect the broader differences across all countries irrespective of their wealth.  
Thus the dynamic, iterative, forecasting model is a true reflection of Rostow's theory.  It allows longer term projections to be made as well as short-term trends to be integrated.  Countries with limited production in more technologically advanced products can develop over time into manufacturing centers of these products as they develop.  The non-linear pooled models allow for this kind of transformation making the QuERI models uniquely suited for capturing the changing global dynamics of production, consumption, and international trade. 
 

Tariffs, Quotas and Jobs -- the Lordstown Conundrum
The workers of Lordstown voted for President Trump in record numbers because he is, as he says, "the tariff man". There are no guarantees in life, and less so when it comes to replacing known supply, often qualified to make the intermediate you need in your end product, and some generic product that may not be supplied on time, at the quality standards you need, or even for a good price. Call it what you like, open markets and free exchange is a far more effective trade policy than trying to pick winners and losers like President Trump has done. With tariffs, its the wack-a-mole on steroids as companies find new foreign suppliers, if need be, pay the higher tariffs on the assumption they will go away (as Trump promised in his deals with China), but rarely do they sign up for the four or five year, multi-billion dollar investment, in adding new domestic supply with the political system on a four year schedule of policy adaptations. To limit trade imbalances, you need across the board, non-discriminatory, tariffs on all imports that will allow private companies to make the hard decisions on cost and efficiency that trade policy demands.

Towards a New Approach to Global Trade Policy: Fair and Balanced Trade to Make Globalization Work
From
Dr. David L Blond, President, QuERI-International (301-704-8942, davidblond2000@gmail.com).
 
I have been studying American and global trade policies now for the past fifty years. I have written often and without much effect calling out the dangers to the erosion of the manufacturing base well before it became popular with politicians and economists beginning at my time at UNCTAD in Geneva in the 1970’s, later as the Pentagon’s Senior (and only) economist in the Office of the Secretary during the Carter and Reagan years, and for the next nearly forty years in the private sector. I worried about the imbalances even as I made my living forecasting and analyzing the global economy writing a series of essays in The Manufacturers magazine in 2001-2004 suggesting how to slowly and deliberately reverse the steady increase in the US trade deficit that began after the Reagan tax cuts and the back-to-back recessions of the 1980’s. The following ideas were first proposed in these essays appearing monthly, but they are as sound today and could easily fit into your own plans as they were then.  The QuERI Integrated Global Model is one of the largest and most complete models of the global economy covering industrial and service output, employment, prices, and international trade.  


Multilateral Solution to the Trade Imbalances
First general principle: Trade must be fair and also balanced if it is to be useful and equitable. 
Second general principle: Any tariff applied must be non-discriminatory and not tied to any single country or product flow. The world is far too complicated and interrelated to allow governments or even smart people to decide winners and losers.
Third general principle: The damage of from imbalances impact both the countries in surplus and the countries in deficit equally, thus the remedy must be applied to both sides of the equation.
Forth general principle: Any changes in trade policy must be made collectively, not unilaterally, thus the United States should propose and lobby strenuously for a revision in the WTO compact that requires the following from all countries party to the WTO agreements:
1.     At the end of the year, the degree to which a country is out of balance with its trade account needs to be fairly assessed allowing for some exclusions for emergency imports or other irregular imports. Countries with trade imbalances for more than two years in a row or three out of the last five years will be required if these imbalances as a share of their GDP are greater than an agreed maximum to apply to all:
a.     Imports for countries with a chronic deficit then governments are obliged to add an ad valorem tariff of 10% on all imports with the exception of primary products (manufactures alone).
b.     Exports for countries with a chronic surplus excluding primary products will be obliged to add an ad valorem excise tax of 10% on all outgoing manufactures.
2.     When countries regain some balance, then international trade and globalization, both necessary for the long-term health of countries and world economic prosperity, then tariffs will be less necessary, but form an automatic stabilizer.
Fifth General Principle: Don’t decide winners and losers, but allow natural processes determine who will change behavior with respect to imports. Thus applying the tariff across the board, on all imported products with a few exceptions, recognizes that companies understand their supply chains better and the costs they incur. A 10% increase in expenses on 30 or 50% of the inputs may place them at a disadvantage against competitors who have a far smaller bill for imported inputs, thus unlike a tariff on final products, companies will adjust sourcing to remain competitive and profitable. Applying the tariff on all imports eliminates the ability of companies to switch suppliers from one country to another with the only recourse to choose between foreign suppliers and domestic suppliers.  
Notes: The successive rounds of global tariff negotiations have significantly lowered barriers to entry until President Trump’s imposition of tariffs on a unilateral basis disturbed the global eco-system, but as the failure of the Doha Round, the last major unresolved global tariff negotiation showed, it is unlikely that there is much benefit from further efforts. Agricultural products are often the center of these talks and also pose the greatest danger to stability. Insistence on opening up the production of food to foreign competition has proven dangerous and destructive. Internalized growth in agriculture has proven to be a powerful force for growth in other sectors tied to agriculture. Self-sufficiency in food supply is insurance against the vagaries of international markets and prices. American efforts to “open markets” have been unhealthy given that long term global food security is critical to insuring adequate stocks in times of famine. 


Balancing Private Sector Obligations to National Economic Wellbeing
Objective: Incentivize companies large and small to see their responsibilities to countries where they operate to create conditions for economic growth and expansion both in surplus and deficit countries. Subsidizing companies through tax credits whose net contribution to economic welfare is positive and penalizing companies whose net contribution to growth is negative. 
First Principle: Company revenues in a single country and company expenditures should be in relative balance in order to maximize the benefits to consumers, workers, and communities.
Second Principle: National economies must serve the entire community of interests, not just company optimization of profits, demand for goods and services reflects the national economic outlook, so selling into a rich market while rewarding, must be balanced against benefits offered to that market through purchases of materials and labor, sufficient supplies, or benefits to consumers through low prices. 
 Third Principle: Let companies determine the mix of domestic and foreign inputs while adding in costs and benefits associated with differential corporate taxes on profits are factored in. 
·       Measuring net contribution by calculating the share of total revenues from domestic sales relative to total sales worldwide against total purchases (materials, wages, and services) from domestic sources against total purchases worldwide.
·       Calculate marginal corporate tax rates based on relative share of domestic sales to domestic purchases with tax rates as a multiple of these ratios:
o  Ratios less than .8 (domestic sales/domestic purchases) are taxed at ½ standard corporate tax rate on profits, thus rewarding companies selling more overseas relative to domestic supply.
o  Ratios between .8 and 1.2 are taxed at the standard corporate tax rate on profits.
o  Ratios more than 1.2, where domestic sales are greater than domestic costs are taxed at 1.5 times standard rate.
·       Implicitly this approach would penalize wholesale channels that buy exclusively from overseas sources of supply. It is likely these sellers would have to raise their margins and potentially diversify. Higher prices for imports would reduce profits of companies relying on foreign sources exclusively. 
·       Applying the corrective only to profits, not costs alone, as tariffs do, will allow the private sector to determine sources of supply, not government regulators. It will also slowly resolve the problems of retailers in finding domestic alternatives. International trade will remain important, but trade imbalances will be forced through market forces back into closer balance by decisions made at the company, not government level. 
·       Additional taxes collected as a result of trade imbalances will flow to governments allowing them to fund programs to enhance domestic supply and competitiveness.  




It is my hope that this short and clear description of the optimal approach to solving the problem of rebalancing the global economy will get to policy makers and leaders, including Vice President Biden. We live in an interconnected world and President Trump's efforts have made it harder to find a good and honest solution to the dual problem of monopoly power of a few countries, as reflected in economies of scale in key regions as well as technology infrastructure, with the benefits of uplifting billions from poverty to a new future. These ideas were first suggested by me around 20 years ago in The Manufacturer Magazine articles, but they are truer today than they were then. Please pass this on. hashtag#Biden hashtag#Trump hashtag#internationaltrade hashtag#congress hashtag#trade hashtag#policy

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