The US and China International Trade Indices: A Comprehensive Empirical Survey, 2020 Edition

Abstract

The performance of the Chinese economy has been remarkable since the country began reforming and liberalizing its economy in the late 1970s. The Chinese experience can provide critical social and economic development lessons to other developing countries that are still suffering from high rates of poverty. In 1980, the Chinese economy was ranked among the 15th top economies in the world; it advanced to 4th place in 2001 before advancing further to be the second-largest economy in the world after the United States in 2009. From 1980 to 2009, the Chinese economy has grown by an annual average rate equal to 10% compared to only 2.8% in the US. In the last decade (from 2010 to 2019), the Chinese GDP growth rates increased by an average annual rate equal to 7.7% compared to 2.3% annual rate in the US. As a result of this amazing growth record, the Chinese economy has grown by 34 folds in the last four decades, from 340 billion USD in 1980 to 11.5 trillion USD in 2019. In the same period, the US economy has increased by less than three folds, from 6.5 trillion USD in 1980 to 18.3 trillion USD in 2019. If both countries would continue to grow at the same rates of the last decade, the GDP of both economies will match each other (22.5 trillion USD) in 2028.

China could not have achieved this remarkable economic performance without liberalizing its trading regime with the rest of the world, specifically the largest economy in the world, the United States. China's total trade with the rest of the world increased from 65 billion USD in the mid-1980s to more than 4.5 trillion USD in 2019. With the US, China total trade increased from 7 billion USD in the mid-1980s to around 542 billion USD in 2019. In 2019 and despite the trading war between China and the US, China was the largest trading partner to the US in 2019, the third-largest destination for its exports, and its largest source of imports. On the other hand, the US is the largest export market for China, its sixth major import source, and its largest merchandise trading partner. Despite the tense trade relationship, the two countries face critical political and economic issues including South China Sea, North Korea, climate change, and economic imbalances.

On March 22, 2018, the two countries started a trade war with each other when the Trump administration imposed tariffs on China as a response to what the US claims are the Chinese theft of its intellectual property. The combined GDP of the two countries accounted for more than 35% of the world's total GDP in 2019. Therefore, the ongoing trade war will hurt not only both economies but also the rest of the world. Monitoring the trade relationship between the two countries is important for policymakers and researchers alike. The raw trade data contains critical trends that we could not observe. That is why we need to measure a number of trade indices that are grouped into five main categories as follows:

1. Trade and Economy and includes the following indicators: the trade openness, the export propensity, the import penetration index, the marginal propensity to import, and trade per capita.

2. The performances of the Chinese and the US international trades and includes the following indicators: growth rates of exports, growth rates of imports, growth rates of trades, normalized trade balance, and export/import coverage indices.

3. The directions of the Chinese and the US international trades and includes the following indicators: shares of the total world exports, shares of the total world imports, shares of the total world trade, major export partners, major import partners, trade intensity, and trade entropy indices.

4. The sectoral structures of the Chinese and the US international trades and includes the following indicators: competitiveness index, major export categories, major import categories, export diversification, revealed comparative advantage, trade complementarity, export similarity, and trade overlap indices.

5. Tariffs imposed on the China-US trade flows and include the following indicators: average applied/bound tariffs, weighted average tariffs, and dispersion of tariffs.