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No.E2018002: Trump Economics and China-US trade imbalances

2018-07-26

Content introduction:

No.E2018002                                                                                                                                                                                                2018-3-16


Trump Economics and China-US trade imbalances



Justin Yifu Lin、Xin Wang



Abstract

With data on overall trade flows and the value-added contents of trade across countries, in this paper we provide empirical evidences to show: 1) the East Asian economies are traditionally the major source of US’s trade deficits and provider of labor-intensive manufacturing, consumer goods to the US due to the differences in comparative advantages between US and East Asian economies; 2) The relocation of labor-intensive manufacturing from other East Asian economies to China in a flying-geese pattern due to changing comparative advantages and the global production sharing contribute to the meteoric rise of China-US trade imbalances in the last three decades; 3) Even though the weight of China’s contribution to US’s trade deficit increased sharply after the 1990s, the contribution of East Asian economies as a group to US trade deficit in fact declined in the same period. Therefore, China and East Asian economies cannot be the main cause for the worsening of US trade imbalances after the 1970s; and 4) the China-US trade imbalance is expected to shrink with the rising of wage in China and the relocation of labor-intensive manufacturing from China to other low-wage labor abundant economies.



Key Words: US-China trade imbalances, comparative advantages, production sharing, flying-geese



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