Understanding the global imbalance from the perspective of processing trade value added of China

Yuning Gao, Wenyin Cheng and Quanxi Yuan

Journal of Chinese Economic and Business Studies, 2018, vol. 16, issue 4, 337-356

Abstract: The paper first exams the overall global imbalance by using the Net International Investment Position and then extracts its change with current account balance and merchandise trade deficit between China and the US. The research goes beyond the traditional interpretation of the phenomenon through the analysis of these outsourcing activities to the network method of redistributing the value added of products through the trade balance among partners. The estimation result of the paper shows that the US–China trade deficit is just about half of the value under the traditional statistics and only contribute to 23.8 per cent, not the 46.2 per cent originally, of the cumulative current account balance growth of the US from 2000. The external imbalance is the result of international division of labour and its elimination relies on the effort of both China and the US to rebalance their domestic economies.

Date: 2018
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DOI: 10.1080/14765284.2018.1504529

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