Decomposing China–Japan–U.S. trade: Vertical specialization, ownership, and organizational form

• Published in: Journal of Asian economics Vol. 20; no. 6; pp. 596 - 610
• Main Authors: Dean, Judith M., Lovely, Mary E., Mora, Jesse
• Format: Journal Article
• Language: English
• Published: Greenwich Elsevier Inc 01.11.2009; Elsevier; Elsevier Science Ltd
• Series: Journal of Asian Economics
• Subjects: Asia; China (People's Republic); FDI; Foreign investment; Foreign investments; Fragmentation; International trade; Japan; Regional integration; Regionalism; Studies; Trade; Trade Asia Regional integration Fragmentation FDI; Trade liberalization; United States International trade commission; United States > US; China; Japan; Trade; Asia; Regional integration; F14; FDI; F15; Fragmentation
• ISSN: 1049-0078; 1873-7927
• DOI: 10.1016/j.asieco.2009.08.003

We use the US International Trade Commission's uniquely detailed 1995–2007 Chinese Customs data to better understand the pattern of trade between China and its two largest trading partners, Japan and the United States. Our review finds that only a small share of these flows can be characterized as arm's length, one-way trade in final goods. Instead, we find extensive two-way trade, deep vertical specialization, concentration of trade in computer and communication devices, and a prominent role for foreign-invested enterprises. While these characteristics define both bilateral relationships, important differences between the two pairs do emerge, suggesting that trade costs influence the method by which multinationals choose to integrate their production with China. Consequently, we argue that dialogue on East Asian trade liberalization should include the possibility of significant production gains for the US from its inclusion in any regional agreements.