Accounting for the China-US Trade Imbalance: An Ownership-Based Approach

• Published in: Review of international economics Vol. 18; no. 3; pp. 540 - 551
• Main Authors: Xu, Yiping, Lin, Guijun, Sun, Huayu
• Format: Journal Article
• Language: English
• Published: Oxford, UK Blackwell Publishing Ltd 01.08.2010; Wiley Blackwell
• Series: Review of International Economics
• Subjects: China; Domestic market; Economic theory; Foreign investment; Foreign markets; Ownership; Studies; Trade; Trade deficit; Trade flows; Trade policy; Trade surplus; U.S.A; World economy; United States > US; China
• ISSN: 0965-7576; 1467-9396
• DOI: 10.1111/j.1467-9396.2010.00882.x

This paper focuses on measuring the trade imbalance between China and the United States (US) within the framework of the ownership‐based approach. It extends the baseline model developed, respectively, by NAS, Julius, and BEA into a three‐country framework, consisting of the domestic economy, the foreign economy, and the rest of the world. The results of the study show that the non‐US foreign direct investment in China is mostly responsible for China's trade surplus with the US. As a result, China's ownership‐based trade surplus is surprisingly small relative to the conventional measure.