Potential Implications of China’s Rebalancing on China, the United States, and the Bilateral Economic Relationship

Abstract

Recent research has examined trade statistics from a value-added perspective and it has traced global value chains (GVC) through countries’ domestic production, exports and imports. Research by Koopman et al., Johnson and Noguera, Timmer, and OECD-WTO has made clear that our understanding of trade linkages based on statistics in gross values can be very different from our understanding of trade based on value-added terms. This paper discusses the potential implications for the U.S. economy and its trade arising from China’s efforts to rebalance its economy and promote consumption-led growth. Our analytical framework is a multiregional computable general equilibrium (CGE) trade model. The model is calibrated to a global data set derived from version 8 of the GTAP database (Narayanan, Aguiar, and McDougall, 2012). This data set has additional information about the sourcing of imports obtained from a global value chains data (Tsigas, Wang, and Gehlhar, 2012). The model has a focus on the United States, China, and their top trade partners. Twenty six regions and 41 production sectors in each region are specified to represent the world economy. The presentation in the GTAP Conference would focus on the additional insights obtained from including the GVC information in the analysis.

Keywords: China, Rebalancing, GTA! Dynamic Modeling, Economic Growth

JEL Classification: E00, F00