Accounting for the China–US Trade Imbalance: An Ownership-Based Approach

Abstract

This paper focuses on measuring the trade imbalance between China and the United States (US) within the framework of the ownership-based approach. It extends the baseline model developed, respectively, by NAS, Julius, and BEA into a three-country framework, consisting of the domestic economy, the foreign economy, and the rest of the world. The results of the study show that the non-US foreign direct investment in China is mostly responsible for China's trade surplus with the US. As a result, China's ownership-based trade surplus is surprisingly small relative to the conventional measure.