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Foreign Trade as a Tool to Strengthen the EU's Competitiveness Against China (A Case of the Service Sector)

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  • Peter Baláž
  • Michaela Královičová
  • Dušan Steinhauser

Abstract

The paper analyses some aspects of EU-China trade relations. Correlation analysis was applied to quantify the extent of the influence of the foreign trade with China on the overall foreign trade of the five members of the EU that have the largest foreign trade with China. Given the ongoing trade deficits of the EU with China, we decided to apply the Trade Complementarity Index (TCI) to determine the extent of their trade complementarity. Our initial hypothesis that the economies are highly complementary was rejected. We thus decided to apply the TCI to the EU's trade relations with the US. For the US, the TCI confirmed the existence of high trade complementarity. This implies that the EU can strengthen its negotiating power with China by increasing its trade diversification. These conclusions were also supported by our econometric model. A thorough analysis of EU-China trade relations also revealed the growth potential of the trade in services, which is gaining its momentum given the turbulences in global trade. The paper suggests that the EU needs to strengthen its trade relations with its "natural trade partners" instead of concentrating on China. The paper's focus on trade in services is a major contribution as it has so far been neglected in the economic literature.

Suggested Citation

  • Peter Baláž & Michaela Královičová & Dušan Steinhauser, 2020. "Foreign Trade as a Tool to Strengthen the EU's Competitiveness Against China (A Case of the Service Sector)," Prague Economic Papers, Prague University of Economics and Business, vol. 2020(2), pages 129-151.
    • Handle: RePEc:prg:jnlpep:v:2020:y:2020:i:2:id:731:p:129-151
    DOI: 10.18267/j.pep.731
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    References listed on IDEAS

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    1. Dazhong Cheng, 2013. "The development of the service industry in the modern economy: mechanisms and implications for China," China Finance and Economic Review, Springer, vol. 1(1), pages 1-12, December.
    2. Robert Koopman & William Powers & Zhi Wang & Shang-Jin Wei, 2010. "Give Credit Where Credit Is Due: Tracing Value Added in Global Production Chains," NBER Working Papers 16426, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Xiaosong Zheng & Anran Sun, 2023. "Digital Services Trade between China and V4 Countries – A Study of Trade Complementarity and Regulatory Restrictiveness," Journal of Economics / Ekonomicky casopis, Institute of Economic Research, Slovak Academy of Sciences, vol. 71(2), pages 139-154, February.

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    More about this item

    Keywords

    Competitiveness; China; EU; foreign trade; service sector;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General
    • L80 - Industrial Organization - - Industry Studies: Services - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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