U.S.-China trade: A disaggregated analysis, 1996-2006

The rising importance of China as a major U.S. trading partner is the most important change in the international specialization pattern of the U.S. over the last decade. Using a multi-dimensional approach and a detailed dataset, we analyze the evolution over time of the trad relationship between China and the U.S. in order to highlight its major quantitative and qualitative changes. In this regard, the role of China as a major trading partner to the U.S. has significantly increased following its entry into the WTO in December 2001. In fact, while between 1996 and 2001 China accounted for 23 percent of the increase in the overall U.S. non-energy trade deficit, over the years 2001 through 2006 China’s contribution to the additional deterioration in the U.S. trade balance shot up to 68 percent. Perhaps more importantly, China’s role as a provider of goods to the U.S. has evolved not only from a quantitative but also from a qualitative viewpoint, moving its exports up the value chain, from lower value-added to higher value-added products. The most dramatic example of this evolution is in the office machines sector: in 2006, China provided 46 percent of total U.S. imports of such products, up from only 5 percent in 1996. In the final part of the paper, we briefly touch upon perhaps the most sensitive and controversial question arising in the context of the U.S. - China trade relationship: whether imports from China are hurting U.S. production and employment in the manufacturing sector.