Full length articleChina-US trade: A global outlier

- Gravity model results indicate that China's exports to the U.S. are an outlier.
- Parts and components exports from Korea and Taiwan to China are also outliers.
- East Asian value-added thus flows disproportionately to the U.S.
- Cointegration evidence indicates that Asian exchange rates influence China's exports.
- A concerted appreciation in East Asia would help rebalance trade with the U.S.

This paper investigates whether China's exports to the U.S. are an outlier. Gravity model results indicate that these exports have been more than $100 billion greater than predicted in every year since 2005, and that both processed exports produced within regional value chains and ordinary exports produced using domestic inputs far exceed predicted values. Exports of parts and components from South Korea and Taiwan, the two leading supply chain economies, to China are also outliers. Cointegration evidence indicates that exchange rates throughout the supply chain impact China's exports. While the Chinese renminbi has appreciated since 2005, exchange rates in supply chain countries have depreciated and contributed to China's outsized exports to the U.S.