New Estimates of the United States–China BilateralTrade Balances

Abstract

The United States and China have vastly different official estimates of the bilateral trade imbalance. The U.S. figures show that the United States had a merchandise trade deficit of US$68.7 billion vis-à-vis China in 1999 whereas the Chinese figures show that China had a merchandise trade surplus of only US$22.4 billion vis-à-vis the United States. There is a difference of US$46.3 billion. Which set of figures is right? It turns out that neither side is completely right. Various factors, such as f.o.b.–c.i.f. adjustments and treatments of re-exports and re-export markups, complicate the measurement of the bilateral trade balance between the United States and China. One important conclusion that emerges is that while U.S. trade statistics may be more reliable than Chinese trade statistics, even they are not completely accurate. By explicitly taking into account the aforementioned factors, the discrepancy between the adjusted U.S. and Chinese data on the bilateral trade balance in 1999 is narrowed from US$46.3 billion to US$4.8 billion, or approximately 10% of the initial figure. Our best estimate for the true U.S.–China bilateral merchandise trade balance for 1999 is US$47.8 billion, in China's favor. If we take into account the trade in services, in which the United States has traditionally enjoyed a surplus, the U.S.–China bilateral trade balance may be estimated at approximately US$45 billion in 1999. Compared with the U.S. trade deficit with Japan (over US$70 billion in 1999), the U.S.–China trade deficit, appropriately adjusted, is still significantly smaller. J. Japan. Int. Econ., March 2001, 15(1), pp. 102–130. Department of Economics, University of California, Santa Cruz, California 95064; and Department of Economics, Stanford University, Stanford, California 94305-6072. Copyright 2001 Academic Press.Journal of Economic Literature Classification Numbers: F10, F13.