Production-driven and non-production-driven bilateral trade balance : assessing trade deficits between the United States and China and the COVID-19 epidemic

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Karamelikli, Huseyin and Ongan, Serdar and Gocer, Ismet and Doyran, Mine Aysen (2024) Production-driven and non-production-driven bilateral trade balance : assessing trade deficits between the United States and China and the COVID-19 epidemic. Chinese Economy, 57 (2). pp. 147-165. ISSN 1558-0954 (https://doi.org/10.1080/10971475.2023.2295638)

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Abstract

This study aims to look deeper into the long-standing phenomenon of the United States' large trade deficits with China by examining both countries' bilateral trading structures (character). In this investigation, we, for the first time, redefine the traditional bilateral trade balance (BTB) ratio based on economic impact content as production-driven BTB ((Formula presented.)) and non-production-driven BTB ((Formula presented.)). This is done because, while the former undergoes an economic activity within the United States, the latter doesn't. The traditional ratio, i.e. total export/total import, doesn’t technically allow such an investigation. Hence, the proposed methodology of this study, using these two new forms of BTBs, may provide new perspectives to this phenomenon for U.S. policymakers. The main empirical finding may make it imperative to analyze the US BTB with China using the methodology proposed because the independent variables of the study's models have different effects on (Formula presented.) and (Formula presented.) For example, while real depreciation in the USD improves (Formula presented.) for 13 industries, the same change in the USD improves (Formula presented.) for only seven. Additionally, this methodology allows U.S. policymakers to compare/review the US BTB based on economic impact contents through (Formula presented.) and (Formula presented.) separately. Last, it can be interpreted that the United States benefits from decreasing trade-policy uncertainty in the United States.

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