Adjusted China-US Trade Balance

Significant differences exist between official Chinese and U.S. trade statistics on the magnitudes of the China-U.S. trade balance in goods as well as in goods and services. These differences arise from a number of factors. First, the convention that exports of goods are measured on an FOB (free on board) or FAS (free alongside ship) basis and imports on a CIF (cost, insurance and freight) basis means that the value of imported goods as measured by the importing nation is always higher than the same goods as measured by the exporting nation. Second, Chinese exports of goods to the U.S. according to Chinese official statistics include only direct exports to the U.S. but not re-exports to the U.S. through Hong Kong, whereas U.S. imports of goods from China according to U.S. official statistics include Chinese re-exports through Hong Kong because the U.S. applies its rules of origin with regard to imports. Third, similarly, U.S. exports of goods to China according to U.S. official statistics do not include re-exports of U.S. goods to China through Hong Kong. Fourth, the increasingly important trade in services between China and the U.S. are often not included. Finally, the real benefit that exports bring to an economy is the value-added (GDP) that it generates, and not its gross value (and employment). Thus a more appropriate measure of the relative benefit is the trade balance in terms of value-added. In this paper, we attempt to adjust both the Chinese and the U.S. official data for the effects of these factors. The Chinese trade surplus still exists after all these adjustments but is significantly reduced from the initial estimate of US$367.4 billion based on U.S. data on the trade in goods to an estimate of US$132.7 billion based on the value-added on the exports of goods and services of China and the U.S. to each other for 2015