Does the China-U.S. Trade Imbalance Stem from Difference in the Comparative Advantages of Service Trade? Empirical Analysis Based on SVAR Model

Huifang Cheng, Chenxiang Hong, Hongyi Li and Yi Zhang

Emerging Markets Finance and Trade, 2023, vol. 59, issue 5, 1444-1463

Abstract: China-U.S. trade imbalance is one of the most complex macroeconomic issues. Based on the data from 1992 to 2020, we combine a two-period consumption decision-making theory and use the SVAR model to explore the reason and mechanism of the China-U.S. trade imbalance. We find that the difference in comparative advantages of service trade is an important reason for the China-U.S. trade imbalance, and the difference in consumption rate is an important mechanism. Furthermore, we support these arguments with the stylized facts of China’s bilateral trade imbalance with other G20 countries. These findings may be a more reasonable explanation for the long-term existence of the huge China-U.S. trade imbalance.

Date: 2023
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DOI: 10.1080/1540496X.2022.2119806

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