econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 21 July 2015

Reconsider China's Global Trade

Written by

As of 2014, China is the world largest exporter and second largest importer of goods. It has trade surpluses with most of its trading partners. In contrast, the United States, the largest economy in the world, has trade deficits with more than 90 countries. In recent years, we can always hear a voice that China is rising while the US is falling. However, I cannot agree with this optimistic view (optimistic from China's perspective).

The reasons are as follows.

First, using gross trade flow data as the basis of analysis is neglecting the fact that there is an increasing fragmentation of production steps across countries since the 1990's. In the literature, it is called "supply-chain trade". Figure 1 below shows final goods as the proportion of total production and exports in different countries and the world. Only 50% of world production and 34% of world exports are final goods (the green bar represents the world as a whole). In other words, more than half of our exports (66%) are intermediate goods which are used as inputs to produce final goods.

Figure 1

Figure 1

( Figure 1 from Richard Baldwin and Javier Lopez-Gonzalez (2014) )

Using the production of Porsche Cayenne as an example to illustrate the concept of “supply-chain trade”. Porsche produces its engine and high-tech components in Germany. These parts are then assembled into cars in countries like Slovakia where labor costs are very low. In the last step, these cars are shipped back to German for final production and inspections. So in the gross trade data, we can see Germany ships high-tech parts to Slovakia while Slovakia ship nearly finished cars to Germany. In value, Slovakia exports more than Germany does!

In the case of China, almost half of its manufacturing exports are produced by processing plants which simply assemble imported parts and components into final goods and then export them. In this way, the values we add on the products we export are far less than developed countries such as the US. For example, Foxconn which assembles iPhones in China and then exports them back to the states earn only $8 a phone, while Apple sells its product for over $600. As a result, gross trade data can be very misleading.

Workers at Foxconn

( From OnlineAthen.com )

Second, one should also pay attention to the unit value of exports instead of only total values. In the literature, this is called the quality of trade. For example, most of products that China exports to the US are labor intensive ones such as shoes, clothes or toys. On the other hand, most exports from the US to China are capital intensive such as aircrafts, vehicles, and machines. We can easily find out that firms in the US are much more competitive than those in China.

In the above paragraphs, it is shown that today's international trade is so complex that one cannot simply use gross trade data for analysis. Admittedly China has been very successful in last two decades and I feel very proud of it. However, China is still a developing country with low per capita income and backward technology. China has a long way to go.

References:

Richard Baldwin and Javier Lopez-Gonzalez. 2014. “Supply-chain Trade: A Portrait of Global Patterns and Several Testable Hypothesis.” The World Economy doi:10.1111/twec.12189

Gordon H. Hanson. 2012. “The Rise of Middle Kingdoms: Emerging Economies in Global Trade.” NBER Working Paper 17961

Lennart C. Kaplan, Tristan Kohl, and Inmaculada Martinez-Zarzoso. 2015. “The Effects of the CEEC’s Accession on Sectorial Trade: A Value Added Prospective” Working Paper

Click here for Historical News Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Contributors


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
The Truth About Trade Agreements - and Why We Need Them
Big Mess in Italy
News Blog
The World's Most Reputable Cities
What We Read Today 07 December 2016
October 2016 Consumer Credit Headlines Say Year-Over-Year Growth Rate Declined
Disabled Veteran And His Service Dog Get Job At Hardware Store
October 2016 JOLTS Job Openings Rate Shows Insignificant Year-over-Year Growth
Do Rises In Oil Prices Mean Rises In Food Prices?
Are Mobile Phone Payments Secure?
Infographic Of The Day: 12 Reasons To Let Your Employees Play Games
Early Headlines: Asia Stocks Up, Oil Down, House Has Stopgap $ Bill, Trump Sold All Stock, Euro Holding On, May Doubles Down, India Economy Struggles, Oz GDP Contraction And More
President Trump Must Be One-Term, Voluntarily!
Documentary Of The Week: Untold History Of The United States, 1890s To 1920
Where MPs Stood On Brexit
How Accurate Are Final US Election Polls
Investing Blog
Exuberance Returns
Investing.com Technical Summary 07 December 2016
Opinion Blog
Trump And Modi: Birds Of The Same Feather, But With Different World Views
Oil Deal Won't Last Long
Precious Metals Blog
Silver Prices Rebounded Today: Where They Are Headed
Live Markets
07Dec2016 Market Close: Wall Street Records New Highs, Health-Care Stocks Tumble, Crude Prices Stall At $50 Handle, New Fears Of A Correction Are Looming
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government



Crowdfunding ....






























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved