The Dynamic Structure of U.S.-China Trade

Abstract

The aim of this paper is to identify structural developments in China’s external sector that have significantly influenced that country’s large and growing merchandise trade surplus vis-a-vis the United States. To reach its objective, this paper will decompose U.S.-China trade flows according to a series of independent and interdependent criteria, using highly disaggregated 1995-2004 customs data that the U.S. International Trade Commission (USITC) recently acquired from official sources in China. This paper will serve as the first of many USITC research products on the dynamics of China’s trade experience over the past decade. An extensive research agenda has already been scheduled to follow the publication of this paper, which will include collaborative research with Dr. Judith Dean, Dr. Michael Ferrantino, Ms. Joanne Guth, Dr. Zhi Wang, and myself (all from the USITC), as well as our organization’s academic collaborators Dr. K.C. Fung (UC Santa Cruz), Dr. Lawrence Lau (Stanford University and the Chinese University of Hong Kong), and Dr. Shunli Yao (Peking University). For this paper, the comments of Dr. Judith Dean were particularly useful in adding structure to the study’s scope, clarity to its method of presentation, and precision to its underlying analysis. After providing an overview of China’s merchandise trade balance with the United States in Part I of this analysis, Part II will identify structural developments in bilateral trade flows using independent classifications of the customs data. Specifically, it will expose patterns that have emerged by decomposing merchandise trade flows one factor at a time, starting with the ownership structure of the considered firms, then their “customs regime”, “incentive scheme”, and finally, the type of goods being traded. Part III will then build upon those findings by decomposing the structures of the fastest growing product categories in bilateral trade, according to the firm-specific criteria identified above. By constructing a multi-dimensional profile of these product drivers and comparing those results to the profile of China’s overall trade with the United States (as well as to other identified product trade drivers), we will gain deeper insight into the important factors that have influenced trade flows between the two countries. Part IV will then identify the single-greatest multi-dimensional contributor to China’s latest export and imports to/from the United States. Finally, the last part of this analysis will provide recommendations for subsequent research.