John B. Benedetto
Recent academic work has suggested that China’s exports to the United States contain a large portion of non-Chinese value added. This paper looks at what the findings of this work could suggest for U.S. and Chinese trade balances, provides some theoretical cautions in interpreting value-added trade findings, and applies those cautions to U.S. and Chinese trade balances.
The paper begins by showing that a country’s reported trade balance with the world is always the same as its value-added trade balance with the world. Thus, to the extent that China’s net exports to the United States are lower on a value-added than on a reported basis, China’s net exports to some other countries must be correspondingly higher on a value-added basis than on a reported basis. China must also have a substantially smaller market for imported final goods than reported import data suggest. Additionally, the paper discusses data and theoretical issues in comparing Chinese value added to value added in other countries.