Estimates of U. S.-China Trade Balances in Terms of Domestic Value-Added

The U.S.-China bilateral trade balance in 2005 in terms of gross values of exports has been estimated by the U.S. Government to be US$201.6 billion, by the Chinese Government to be US$114.2 billion, and by Fung, Lau and Xiong (2006) to be US$172.3 billion. However, the domestic value-added generated by exports provides a more accurate measurement of the economic benefits to the exporting country than the gross value of exports. On the basis of a recent study by Lawrence Lau, et al, “The Estimation of Domestic Value-Added and Employment Generated by U.S.-China Trade,” the U.S.-China bilateral trade balance is estimated in terms of the total domestic value-added generated in each country by its exports to the other country respectively rather than the gross value of exports. It is found that in 2002, US$1,000 of Chinese exports to the United States would generate a direct Chinese domestic value-added, or Chinese GDP, of US$177 and an indirect Chinese domestic value-added of US$191, resulting in a total Chinese domestic value-added of US$386. It is also found that US$1,000 of U.S. exports to China would generate a direct U.S. domestic value-added, or U.S. GDP, of US$440 and an indirect U.S. domestic value-added of US$433, with a total U.S. domestic value-added of US$873. The domestic value-added content of U.S. exports to China is thus more than twice that of Chinese exports to the U.S. On the basis of these estimates of total domestic value-added content, and the adjusted export data compiled by Fung, Lau and Xiong (2006), an estimate of U. S.-China bilateral trade balance in 2005 in terms of domestic value-added would be US$39.6 billion in China’s favor.