Anti-Comparative Advantage: A Puzzle in U.S.-China Bilateral Trade

Abstract

The US-China bilateral trade has grown fast in the past three decades, while their trade imbalance also enlarges dramatically, especially after China’s WTO accession in 2001. Significant structural adjustments are taking places in both countries. In particular, Obama administration has pledged to double US exports in 5 years, which may help US economy to grow and to reduce trade deficits. The importance of the structure in US-China bilateral trade is obvious in practice, yet studies in it have been very few in existing literature. This paper, therefore serves to fill this gap. Interestingly, this paper reveals a puzzle in the trade structures between China and the United States. That is: the US exports less to China in sectors it has greater comparative advantage, and the more US’s productivity exceeds China in a sector, the less it exports to China than to the rest of the world; both facts get more significant after China’s WTO accession. This seems to be inconsistent with the prediction of comparative advantage in standard trade theory. In contrast, the comparative advantage theory works well on China’s exports to the US. Such a data pattern, named as “Anti-Comparative Advantage Puzzle”, might be potentially due to the US’s export control towards China or other factors affecting bilateral trade structures. We first provide some policy and data evidences; then employ an econometric analysis to control the impacts of other economic variables. Our results show that after controlling for production capacity, transportation costs, tariffs and factor intensity etc., the “Anti-Comparative Advantage Puzzle” still exists, and survives comprehensive robustness checks.