China-U.S. Trade Balance from the National Income Perspective

Li Xinru 1, Chen Xikang 2, Duan Yuwan 3 and Zhu Kunfu 4

1,2 Academy of Mathematics and Systems Sciences (AMSS), Chinese Academy of Sciences (CAS); University of Chinese Academy of Sciences (UCAS); Key Laboratory of Management, Decision and Information Systems, CAS
3 School of International Trade and Economics, Central University of Finance and Economics (CUFE)
4 Research Institute for Global Value Chains (RIGVC), University of International Business and Economics (UIBE)

Abstract: This paper calculates the China-U.S. trade balance from the national income perspective based on an input-output model that differentiates domestic and foreign-invested companies. The result shows that due to different degrees of dependence of both countries on foreign production factors such as foreign capital for the manufacturing of export goods, only 87.7% of the domestic value-added created by China’s exports to the U.S. in 2012 was China’s national income, whereas 96.2% of value-added in U.S. exports to China was U.S. national income. In the comparison of total export volume and export value-added, the home country’s national income created by exports can more realistically reflect a country’s gains from trade. In 2012, China’s trade surplus with the U.S. stood at 102.8 billion US dollars in national income terms, which is 61% and 22% smaller than the results in gross and value-added terms, respectively. The implication is that the traditional trade balance accounting method seriously exaggerates the China-U.S. trade imbalance.

Keywords: national income, China-U.S. trade balance, input-output model, foreign direct investment

JEL Classification Codes: C67, D21, F14, F21
DOI:1 0.19602/j .chinaeconomist.2019.5.06