As usual the American press missed the real story.

The American press has made much of news that Japan last year recorded a deficit of $32 billion on its visible trade. Supposedly this is the beginning of the end for the Japanese trade engine. Some of us have been around a while and have seen that same story written dozens of times over the years — yet always said trade engine has not only recovered but has gone on to ever greater achievements.

The first thing to note is that the figures are  incomplete in a way that crucially  distorts the real news — of an extraordinarily strong performance in the face of unprecedented challenges.

The proper way to measure a nation’s performance is not by the visible trade balance alone but by the current account, which is the widest and most meaningful measure of a nation’s trade. The current account includes financial flows such as interest payments,  dividends, insurance premiums, and patent royalties. The balance in such items has been positive for Japan since the 1960s and the net invisible surplus has grown astoundingly in the last two decades. This reflects not only the fact that the underlying economic performance in true invisibles has been strong but because of so-called transfer pricing, which is now rampant in Japanese industry and results in massive understatement of exports.  (In a typical maneuver, goods might be shipped to China via Hong Kong. The goods are exported from Japan at heavily discounted prices and a Hong Kong subsidiary takes a huge profit in selling to China. Such profits constitute hidden export revenues that are not caught in the visible trade numbers. The maneuver makes sense because Japan’s corporate tax rate is one of the world’s highest.)

As for the numbers as officially presented, the effect of temporary factors is hard to exaggerate: the earthquake, tsunami, power shutdowns, and then late in the year the Thai floods all contributed to severe supply chain disruption that curtailed exports. Meanwhile oil imports have temporarily soared as almost the entire nuclear power industry has been closed for maintenance.

Then there is the “minor” matter of a 1930s-style recession across much of the world, which has drastically cut demand for Japanese exports, particularly capital goods.

For me  the  Wall Street Journal‘s coverage was particularly notable as an exercise in  spin and double-think. Not only did the Journal not make any mention of transfer pricing but it did not refer to the fact that the current account figures, due in a few days, will show a strong surplus — a truly remarkable performance given the circumstances of 2011.

The Journal only covers Japanese trade figures when they are bad. (The $196 billion current account surplus of 2010, announced this time last year, did not merit a single sentence in the Journal.) By the same token when it comes to reporting America’s trade performance, the Journal thinks the numbers count only when they are good.

Another inconsistency is that while huge U.S. trade deficits are dismissed as not important or are even presented  as evidence of the “strength of the American economy,” bad Japanese numbers — however obviously fleeting — are given big play as a “historic” turn towards economic decline.

I have a modest request for the Journal: when the current account figures come out, please give them at least as much attention as you have given the visible figures.