Abstract
US–China economic ties have expanded substantially since China began reforming its economy and liberalizing its trade regime in the late 1970s. Total US–China merchandise trade rose from $2 billion in 1979 (when China’s economic reforms began) to $636 billion in 2017. China is currently the United States’ largest merchandise trading partner, its third-largest export market, and its biggest source of imports. There are multiple areas of disagreement that preceded the trade war. One ground is that China is buying off American assets. It is also alleged that China violates US patent rights. It is also stated by United States that China has restrictions on US companies entering certain areas in production in China. The scale at which US–China trade patterns are changing and ownership patterns of both countries’ MNCs are changing results in a mystification of trade data due to intra-firm trade imports and exports. This may be a major reason why apparent trade patterns do not clearly serve as a guide for commenting on policy wars. This study examines the patterns in the US–China exports, mutual imports, and current account balances over a nearly 25-year period, to form a view about whether the trade war is justified. The general methodology in this paper has been to use a set of semi-log growth equations that enable comparison of various trade-related variables between the United States and China. The method focuses on the long-term patterns before and after global financial crisis (GFC), in the two countries, with the help of a standard dummy variable model. In conclusion, the US claims seem to be unfounded when studied through the lens of long-term trade patterns between the two countries. China’s export performance is much better. The United States’ dependence on imports from China has fallen drastically. Finally, the current balance of payments (BoP) of the United States continues to remain highly negative; whereas, in spite of the setback due to the GFC, China’s BoP position all along continues to be positive.
Highlights
US–China economic ties have expanded substantially since China began reforming its economy and liberalizing its trade regime in the late 1970s
It is alleged that China violates US patent rights
It is stated by the United States that China has restrictions on US companies entering certain areas in production in China
Summary
US–China economic ties have expanded substantially since China began reforming its economy and liberalizing its trade regime in the late 1970s. Total US–China merchandise trade rose from $2 billion in 1979 (when China’s economic reforms began) to $636 billion in 2017. China is currently the United States’ largest merchandise trading partner, its third-largest export market, and its biggest source of imports. Given this background, this paper investigates the long-term trends in the US–China trade. One of the allegations was that China is using espionage against the United States. It is alleged that China violates US patent rights. It is stated by the United States that China has restrictions on US companies entering certain areas in production in China. This paper looks into the long-term trade pattern of the United States and China and attempts to
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