The Substitution among the Exports of Taiwan, China, and Other Countries to the United States

The substitution among the exports of countries is a major phenomenon and foundation of the fast-changing global economy. However, the econometric method using aggregate data can usually estimate the extent of substitution only several years after the substitution has happened. This paper designed a detailed market share (DMS) analysis method that uses detailed trade data to document the actual replacement among the exports of different countries. The DMS indicators can measure the replacement that happened in every product or product group for every year. Therefore, DMS indicators can also be used as variables in further econometric research. This paper employed indicators to analyze the exports of Taiwan and China to the United States during 1990 and 2006. We found that the proportion of Taiwan's exports to the United States that was replaced by China during this period was about 71 percent to 85 percent. Taiwan, Japan, and other developed countries were the major sources of China's export growth. China also replaced a great part of developing countries' exports. China has also started to replace the high-end products of advanced countries. We found that 63 percent, 60 percent, and 33 percent of the highly human capital-intensive exports from Taiwan, Korea, and Japan, respectively, have been replaced by China. Most of these replacements happened in high-end products after 2000. Therefore, more products from advanced countries will be replaced by China in the near future. (c) 2008 The Earth Institute at Columbia University and the Massachusetts Institute of Technology.