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American Trade Deficits Overall And With China: The Twin Effects Of Technological Revolution And Global Value Chains

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    (Department of Economics, Cornell University, 470 Uris Hall, Ithaca NY 14853-7601, USA)

Reality about US-China trade differs much from what is written. For the US, supplying vehicle currency for the growing world trade means a naturally rising over-all deficit, long before China's trade expansion. Improved transportation and communication cause fragmented production in lengthened supply chains. As the last production link, China's value-added share is miniscule to that of Japan or Korea, in China's exports to US (in gross value). Bilateral trade deficit to China is thus natural. This is intensified by China's amassing foreign reserves that suppressed RMB, diverted some trade from Mexico, etc., and shifted jobs long lost to the US. Over two decades, deficit to China has risen from 1/5 to 4/5 of deficit to all East Asia, yet with the latter falling from 100% to 2/3 of the over-all deficit.

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Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal China Economic Policy Review.

Volume (Year): 01 (2012)
Issue (Month): 01 ()
Pages: 1-18

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Handle: RePEc:wsi:ceprxx:v:01:y:2012:i:01:p:1250002-1-1250002-18
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