Does the China-U.S. Trade Imbalance Stem from Difference in the Comparative Advantages of Service Trade? Empirical Analysis Based on SVAR Model

ABSTRACT

China-U.S. trade imbalance is one of the most complex macroeconomic issues. Based on the data from 1992 to 2020, we combine a two-period consumption decision-making theory and use the SVAR model to explore the reason and mechanism of the China-U.S. trade imbalance. We find that the difference in comparative advantages of service trade is an important reason for the China-U.S. trade imbalance, and the difference in consumption rate is an important mechanism. Furthermore, we support these arguments with the stylized facts of China’s bilateral trade imbalance with other G20 countries. These findings may be a more reasonable explanation for the long-term existence of the huge China-U.S. trade imbalance.

KEYWORDS:

• Trade imbalance
• service trade
• consumption rate
• SVAR model

JEL:

• E21
• F10
• F14

Acknowledgement

We express our thankfulness to the financial support funded by the Major Program of the National Social Science Foundation of China (No. 18ZDA067) and National Natural Science Foundation of China Youth Project (No. 71803179). The authors also sincerely appreciate the comments of the editors and referees on the earlier version of this paper.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1. Trade data has been deflated using the 2015-based GDP deflator. The GDP deflator is extracted from the World Bank’s World Development Indicator (WDI).

2. See website: https://unctadstat.unctad.org/wds/TableViewer/tableView.aspx?ReportId=96.

3. See website: https://data.imf.org/?sk=9D6028D4-F14A-464C-A2F2-59B2CD424B85&sId=1390030341854.

4. See website: https://www.wto.org/english/res_e/statis_e/tradeserv_stat_e.htm.

5. See website: http://www.stats.gov.cn/tjsj/ndsj/2021/indexch.htm.

6. Since this part is in the Stylized fact analysis in Section 3.1, the regression result table is not put there. The same below.

7. “World Trade Report 2019: The Future of Service Trade.” See website.

https://www.wto.org/english/res_e/publications_e/wtr19_e.htm

Additional information

Funding

The work was supported by the Major Program of the National Social Science Foundation of China [18ZDA067].