Anti-Comparative Advantage: A Puzzle in U.S.-China Bilateral Trade

HKIMR Working Paper No.09/2015

29 Pages Posted: 11 Apr 2015

See all articles by Jiandong Ju

Jiandong Ju

University of Oklahoma - Department of Economics; Tsinghua University - PBC School of Finance

Ziru Wei

Tsinghua University

Hong Ma

Tsinghua University - School of Economics & Management

Date Written: April 10, 2015

Abstract

From 1992 to 2011, the total trade volume between the U.S. and China increased by 25 times, and China’s share in U.S. total imports increased from 5% to 20%. However, the U.S.’s share in China’s total imports dropped from 11% to 8% in the same period. In the major categories of U.S. exports to China, waste & scrap increased from 744 million dollars in 2000 to 7,562 million dollars in 2008, rising 916% times and becoming the no.1 product that the U.S exports to China. It is important to understand what explains these structural changes, and to ask whether the principle of comparative advantage determines the structure of U.S.-China bilateral trade. Interestingly, we find an "Anti-Comparative Advantage" puzzle: the U.S. exports less to China in sectors where it has greater comparative advantage, while China exports more to the U.S. in its sectors with greater comparative advantage. To further study this issue, we extend Eaton-Kortum model of bilateral trade to multiple sectors and test it empirically using US and China trade data. We find that after controlling for the importer’s demand, trade costs and factor intensities, etc., comparative advantage cannot explain U.S.-China bilateral trade flows. The puzzle survives various robustness checks.

JEL Classification: F11, F14, F15

Suggested Citation

Ju, Jiandong and Wei, Ziru and Ma, Hong, Anti-Comparative Advantage: A Puzzle in U.S.-China Bilateral Trade (April 10, 2015). HKIMR Working Paper No.09/2015. Available at SSRN: https://ssrn.com/abstract=2592827 or http://dx.doi.org/10.2139/ssrn.2592827

Jiandong Ju (Contact Author)

University of Oklahoma - Department of Economics ( email )

729 Elm Avenue
Norman, OK 73019-2103
United States
405-325-5492 (Phone)
405-325-5842 (Fax)

Tsinghua University - PBC School of Finance

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

Ziru Wei

Tsinghua University

Beijing, 100084
China

Hong Ma

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

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