Post COVID-19 International Economy Recovery: Forecasting Bilateral Trade Between U.S. and China

Abstract

This paper aims to use an empirical analysis to study and forecast the bilateral trade between the United States of America and the Peoples Republic of China in the post-pandemic era. This study was conducted from three perspectives: aggregate demand (import), supply (export), and trading potentials. In sections of import and export analysis, the paper focuses on analyzing the aggregate behavior by households with Schmitt-Grohe, Uribe, Woodfords risk-averse demand model in an open economy and the firm production optimization model by Giovanni, Kalemli-zcan, Silva, and Yildirim. In the analysis of the bilateral trade potentials, a gravity model of trade with one least square regression was applied and subsidized with the test method from Liu. From the study, it was found that the bilateral import and export between the U.S. and China are facing challenges from stringent policies, fragmentation of global value chains, and the residual effects of the pandemic on consumption. Thereby, the trading potential between the U.S. and China is restrained to an intermediate level, which is not beneficial for the robust growth of bilateral trade in the future.