< Back to Current Version

What’s the Difference?—Comparing U.S. and Chinese Trade Data

Changes from March 27, 2009 to May 4, 2009

This page shows textual changes in the document between the two versions indicated in the dates above. Textual matter removed in the later version is indicated with red strikethrough and textual matter added in the later version is indicated with blue.


What’s the Difference?—Comparing U.S. and Chinese Trade Data Michael F. Martin Analyst in Asian Trade and Finance March 27, 2009Specialist in Asian Affairs May 4, 2015 Congressional Research Service 7-5700 www.crs.gov RS22640 CRS Report for Congress Prepared for Members and Committees of Congress What’s the Difference?—Comparing U.S. and Chinese Trade Data Summary The size of the U.S. bilateral trade deficit with China has been and continues to be an important issue in bilateral trade relations. Some Members of Congress view the deficit as a sign of unfair economic policies in China, and have introduced legislation seeking to redress the perceived competitive disadvantage China’s policies have created for U.S. exporters. There is a large and growing difference between the official trade statistics released by the United States and the People’s Republic of China. According to the United States, the 20082014 bilateral trade deficit with China was $266.3342.6 billion. According to China, its trade surplus with the United States was $170.8237.0 billion—$95.5105.6 billion less. This paper examines the differences in the trade data from the two nations in two ways. First, it compares the trade figures at the two digit level using the Harmonized System to discern any patterns in the discrepancies between the U.S. and Chinese data. This comparison reveals that over two-thirds90% of the difference in the value of China’s exports to the United States isin 2014 was attributable to five types of goods. Those five types of goods, in order of the size of the discrepancy, were electrical machinery; machinery; toys and sporting goods; footwear; and leather articles. The second approach to examining the differing trade data involves a review of the existing literature on the technical and non-technical sources of the trade data discrepancies. This report is updated annually, after the release of official trade data by China and the data discrepancies. The literature reveals that the main sources of the discrepancies are differences in the list value of shipments when they leave China and when they enter the United States, and differing attributions of origin and destination of Chinese exports that are transshipped through a third location (such as Hong Kong) before arriving in the United States. Because of the differences in the official bilateral merchandise trade data, the U.S.-China Joint Commission on Commerce and Trade (JCCT) established a statistical working group in 2004. The working group has released two reconciliation studies (in 2009 and 2012) to identify the causes of the statistical discrepancies. The adjustments contained in the two studies are not meant to imply errors in the official statistics of either country. This report is updated annually, after the release of official trade data by China and the United States. Congressional Research Service What’s the Difference?—Comparing U.S. and Chinese Trade Data Contents Introduction...................................................................................................................................... 1 Comparison of U.S. and Chinese Trade Data .................................................................................. 1 Delving into the Data: Examining HS Code .................................................................................... 2 Explaining the Differences: Literature Summary ....Summary of the Literature ...............................................................4......... 3 Technical Explanations .............................................................................................................. 4 Official Definitions of Exports and Imports........................................................................ 4 Definition of Territory ......................................................................................................... 4 Timing ................................................................................................................................. 4 Declaration of Country of Origin ......................................................................................5.. 4 Exchange Rates ...............................................................................................................5.... 4 Non-Technical Explanations...................................................................................................... 5 Value Differences in Direct Trade ...................................................................5 Intermediation.................... 5 Under-Invoicing ..............................................................................................5 Under-Invoicing.................... 5 Intermediation .................................................................................................................5.... 5 Joint China-U.S. Studies of Discrepancies ...................................................................................... 6 Implications for Congress ................................................................................................................ 6 Selected Bibliography on the Differences Between U.S. and Chinese Bilateral Trade Figures ......................................................................................................................................6.... 7 Tables Table 1. U.S. and Chinese Trade Figures, 2001-20082014 ..................................................................... 2 Table 2. Top 10Five Discrepancies for U.S. Imports from China, 2008 2014............................................... 3 Contacts Author Contact Information .........................................................................................................7.... 8 Congressional Research Service What’s the Difference?—Comparing U.S. and Chinese Trade Data U .S. tradeIntroduction The U.S. merchandise trade deficit with the People’s Republic of China (China) is becoming increasingly contentious as the U.S. bilateral trade deficit rises.1 Debate over this trade deficit is hampered because ofremains a major source of bilateral tension. Members of Congress and other U.S. government officials often point to the bilateral trade imbalance as evidence that China is not competing fairly in the global market.1 Debate over this trade deficit is hampered by disagreement between the two countries on how large the deficit actually is. According to official U.S. figures, China has surpassed Canada as the largest supplier of U.S. imports, running up a bilateral trade surplus of $266.3 billion in the process. However, in 2014 of $342.6 billion. However, according to theofficial Chinese, its figures, China’s trade surplus with the United States in 2013 was only $170.8237.0 billion—$95.5 105.6 billion less than the U.S. figure (see Table 1). The size of the bilateral trade deficit also has been an issue in proposed legislation addressing trade relations with China. For instance, H.R. 1002, which was introduced during the 110th Congress, would have imposed tariffs on Chinese imports unless China revalues its currency. The bill explicitly listed the official U.S. figures for the bilateral trade deficit with China among its findings. Similarly, H.R. 782 and S. 364, also introduced in the 110th Congress, would have classified “exchange rate misalignment” or “exchange rate manipulation” as a countervailable export subsidy. Both bills cited bilateral trade deficits as evidence of exchange rate misalignment or manipulationexample, the Emergency China Trade Act (H.R. 2909) introduced during the 112th Congress would have revoked normal trade relations (NTR) status, also known as most favored nation (MFN) trade status, for China and required the President to negotiate a trade agreement with China that would “achieve and maintain balanced trade” between the two nations within four years of the bill’s enactment. As of the time this report was released, no similar legislation had been introduced by the 114th Congress. Comparison of U.S. and Chinese Trade Data Table 1 lists the official trade statistics from the United States and China for the years 2001 to 20082014, using official trade data.2 According to both countries, the U.S. trade deficit with China is large and growing. Where the two sides differ is how big the deficit is and how fast it is growinghas grown. From the U.S. perspective, its bilateral trade deficit with China more than trebledquadrupled in value over over the last eight13 years, from just over $83 billion in 2001 to over $266342 billion in 20082014. However, from the Chinese view, its bilateral trade surplus with the United States increased more than sixfold over the last eight yearseight-fold, from about $28 billion in 2001 to nearly $171 billion in 2008. 1 For a more detailed discussion of key Sino-U.S. trade issues, see CRS Report RL33536, China-U.S. Trade Issues, by Wayne M. Morrison, and CRS Report RL31403, China’s Trade with the United States and the World, by Thomas Lum and Dick K. Nanto. 2 China values its export data using the “free on board,” or F.O.B. method and its imports are valued using the “cost, insurance, and more than $237 billion in 2014. Table 1 reveals that most of the discrepancy between the trade data from the two nations stems from significantly different figures for China’s exports to the United States. While the difference between the U.S. and Chinese figures for U.S. exports to China was generally less than $10 billion until 2011, China’s figures for its exports to the United States differed by $48.0 billion in 2001 and $96.0 billion in 2014. However, the discrepancy between U.S. export and Chinese import figures for bilateral trade has been rising in recent years. 1 Both China and the United States have substantial trade surpluses with some trading partners and trade deficits with other trading partners. Also, the phenomena of significant difference in the trade figures between two trading partners is not uncommon. The size of the differential between China and the United States is particularly large. 2 China values its exports using the “free on board,” or F.O.B. method and its imports using the “cost, insurance, and freight,” or C.I.F. method. The United States values its exports using the “freight along side,” or F.A.S. method and its imports are valued using the “Customs value” method. The implications of the different evaluation methods isare discussed later in this the report. Congressional Research Service 1 What’s the Difference?—Comparing U.S. and Chinese Trade Data Table 1. U.S. and Chinese Trade Figures, 2001-20082014 (billion U.S. dollars) U.S.Chinese Trade Figures ChineseU.S. Trade Figures Year Exports to China (F.A.S.) Imports from China (Customs) Exports to United C.V.) Trade Balance Exports to United States (F.O.B.) Imports from United States (C.I.F.) Trade Balance 2001 19.235 102.280 -83.045 54.277 26.204 28.073 2002 22.053 125.168 -103.115 69.959 27.228 42.731 2003 28.418 152.379 -123.961 92.510 33.883 58.627 2004 34.721 196.699 -161.978 124.973 44.653 80.320 2005 41.837 243.462 -201.625 162.939 48.735 114.204 2006 55.224 287.773 -232.549 203.516 59.222 144.294 2007 65.238 321.508 -256.270 232.761 69.861 162.900 2008 71.457 337.790 -266.333 252.327 81.486 170.841 2009 69.576 296.402 -226.826 220.706 77.433 143.273 2010 91.878 364.944 -273.066 283.184 101.310 181.873 2011 103.879 399.335 -295.457 324.300 118.121 206.180 2012 110.590 425.644 -315.053 351.884 127.755 224.129 2013 122.016 440.434 -318.417 368.349 145.926 222.423 2014 124.024 466.656 -342.633 396.082 159.036 237.046 Source: China’s General Administration of Customs, Global Trade Atlas, U.S. International Trade Commission. Note: China values its exports using the “free on board,” or F.O.B. method and its imports using the “cost, insurance, and freight,” or C.I.F. method. The United States values its exports using the “free alongside,” or F.A.S. method and its imports using the “Customs value” (C.V.) method. Delving into the Data: Examining HS Code The most widely used international system for classifying traded goods is the Harmonized Commodity 252.327 81.486 Source: Global Trade Atlas, U.S. International Trade Commission. Table 1 reveals that most of the discrepancy between the trade data from the two nations stems from significantly different figures for China’s exports to the United States. While the difference between the U.S. and Chinese figures for U.S. exports to China has been $10 billion or less over the last eight years, China’s figures for its exports to the United States differed by $48.0 billion in 2001 and $85.5 billion in 2008. Delving into the Data: Examining HS Code The most widely used system for classifying traded goods is the Harmonized Commodity Description and Coding System, commonly referred to as the Harmonized System or simply HS Code. Every product traded is classified into a 10-digit code. The first two digits of the products code corresponds products code correspond to one of the 98 HS “chapters,” that classify all goods in general categories. The U.S. International Trade Commission maintains the U.S. version of the HS Code, officially called the “Harmonized Tariff Schedule of the United States,” or HTS. Since both the United States and China release China use the same HS chapters, it is possible to compare the trade data at this level. Table 2 lists in rank order the top tenfive HS chapters according to the difference between the figures figures for U.S. imports from China and Chinese exports to the United States for 20082014. In all 10 five cases, the U.S. import figures exceeded China’s export figures. The top five HS chapters—footwear leather articles (42), footwear (64), machinery (84), electrical machinery (85), furniture (94), and toys and sporting goods goods (95)—account for over two-thirds (66.8%)90% of the difference between the U.S. and Chinese figures. The top 10 chapters collectively account for 83.9% of the difference. figures. Congressional Research Service 2 What’s the Difference?—Comparing U.S. and Chinese Trade Data Table 2.Top 10 Discrepancies for U.S. Imports from China, 2008 (billion dollars) HS Chapter U.S. Imports from China (U.S. data) China’s Exports to U.S. (China Data) Difference Electrical Machinery (85) 80.348 58.387 21.961 Toys and Sporting Goods (95) 27.181 12.279 14.902 Machinery (84) 65.147 55.097 10.050 Footwear (64) 14.479 9.317 5.162 Furniture (94) 19.405 14.412 4.993 Woven Apparel (62) 13.317 9.101 4.216 Knitted Apparel (61) 10.683 7.291 3.392 Leather Goods (42) 7.386 4.220 3.166 Plastic (39) 8.937 6.354 2.583 Precious Stones (71) 2.706 1.400 1.306 Source: Global Trade Atlas, U.S. International Trade Commission. MostAll five of these 10 chapters also ranked high according to both countries in terms of their absolute value of trade. The first six chapters listed in Table 2 were also the top six ranked chapters in With the exception of leather articles, the other four were among the top five ranked chapters in terms of the value of imports from China, according to the United States, and accounted for 65 60.1% of the total value of imports in 2008. The first four sources for the discrepancies were also the top four sources of exports to the United States, according to China. Of the 10 chapters listed in Table 2, eight were among the top 10 sources of China’s exports (leather goods ranked 14th and precious stones was 23rd among the HS chapters)3 and nine were among the top10 in rank order, according to the United States (precious stones was 25th).4 The 10 chapters listed above provided 73.9% of the value of what the United States said it imported from China in 2008, and 70.5% of what China said it exported to the United States. On the other side of the trade equation, there were six chapters where China’s imports exceeded U.S. exports by more than $1 billion, and four chapters where U.S. exports exceeded Chinese imports by more than $1 billion. China’s imports from the United States of grains, seeds, and fruits (12); chemical products (38); plastic (39); machinery (84); electrical machinery (85); and optical and medical equipment (90) were more than $1 billion greater than the U.S. exports to China. However, U.S. exports to China of iron and steel (72); copper (74); aluminum (76); and aircraft (88) were more than $1 billion greater than China’s imports from the United States2014. Four of the sources of discrepancies— electrical machinery, footwear, machinery, and toys and sporting goods—were among the top 10 sources of exports to the United States, according to China. Table 2. Top Five Discrepancies for U.S. Imports from China, 2014 (billion dollars) HS Chapter U.S. Imports from China (U.S. data, using C.V.) China’s Exports to U.S. (China data, using F.O.B.) Difference Electrical Machinery (85) 127.086 92.063 35.022 Machinery (84) 105.255 90.796 14.458 Toys and Sporting Goods (95) 22.597 13.195 9.402 Footwear (64) 17.066 13.859 3.218 8.537 6.838 1.699 Leather Articles (42) Source: Global Trade Atlas, U.S. International Trade Commission. On the other side of the trade equation, there were five chapters where China’s imports exceeded U.S. exports by more than $1 billion, and no chapters where U.S. exports exceeded Chinese imports by more than $1 billion. China’s officially reported imports from the United States of miscellaneous grains, seeds and fruits (12); organic chemicals (29); plastic (39); machinery (84); electrical machinery (85); and optical and medical equipment (90) were more than $1 billion greater than the official U.S. exports to China. It is also worth noting that on both sides of the trade balance equation, two of the greatest differences in the official trade statistics of the two nations occurred in the same HS chapters— machinery (84) and electrical machinery (85). The discrepancies between the official trade statistics for these two types of goods have been consistently large for flows in both directions 3 According to China’s export figures, iron and steel (chapter 73) ranked 6th and Non-railway vehicles (chapter 87) ranked 9th among the chapters. 4 According to U.S. import figures, iron and steel (chapter 73) ranked 8th among the chapters. Congressional Research Service 3 What’s the Difference?—Comparing U.S. and Chinese Trade Data since 2001. This indicates since 2001, indicating a systemic difference in the evaluation of the bilateral trade of these goods. Explaining the Differences: Summary of the LiteratureLiterature Summary The question as to why China’s official statistics are routinely much lower in value than the official U.S. trade statistics has been and continues to be the subject of analysis by scholars, government officials, and other interested parties. The following is a short review of some of the key explanations provided in this literature, categorized into “technical” and “non-technical” explanations. “Technical” explanations refer to procedural or administrative causes for the discrepancies; “non-technical” explanations include causes arising from non-procedural or administrative sources. nonadministrative sources. Congressional Research Service 3 What’s the Difference?—Comparing U.S. and Chinese Trade Data Technical Explanations Official Definitions of Exports and Imports In its official statistics, China evaluates exports using the more commonly used “free on board,” (F.O.B.) definition5 and theterms,3 and evaluates imports using “cost, insurance, and freight, (C.I.F.) definition6 to evaluate imports. The ” (C.I.F.) terms.4 The United States, however, reports its exports evaluated by using the “freight along side” (F.A.S.) definition7 and values using “free alongside” (F.A.S.) terms5 and values imports using a customs definition. 86 As a result, official U.S. trade data placesplace a lower value on both U.S. exports to China and imports from China than the official Chinese data. In addition, direct comparisons of the official U.S. and Chinese trade balances reported in the media are potentially misleading because the goods trades are being evaluated using different methods. For more accurate direct comparisons, the trade data for both nations should be determined by using the same definition same terms, such as the general international convention of practice of F.O.B. for exports and C.I.F. for imports. Definition of Territory The United States includes Puerto Rico and the U.S. Virgin Islands in its trade data; China does not,. China treats Puerto Rico and the U.S. Virgin Islands as separate customs territories. According to most studies, this is a comparatively minor source of difference in the trade figures. Timing Because of the distance between China and the United States, it takes time between the export of the goods from China and their import in the United States. Goods in transit at the end of the year 5 6 are counted as exports by China, but not as imports by the United States. However, the lag between shipments occurs at the beginning and the end of the year, thus minimizing the effect of timing on the overall trade balance difference. Declaration of Country of Origin The current practice of U.S. Customs is to rely on the declaration of the importer to determine the country of origin. Some analysts believe that importers are misidentifying a significant amount of imports as Chinese. Exchange Rates Because China’s currency, the renminbi, is allowed to fluctuate within a small range, the exchange rate between the renminbi and the U.S. dollar changes over time.7 The value of a 3 “Free on board” includes the cost of getting the goods to port and loading them onto the ship.; sometimes also referred to as “freight on board.” 4 The C.I.F. definition adds the cost of insurance and shipping (freight) to the value of the imported goods. 7 5 Unlike F.O.B., F.A.S. does not include the costs of clearclearing the goods for export and loading the goods. As a result, the the FAS value of a shipment is less than its FOB value. 86 The customs definition only includes the actual cost of the goods; it does not include the cost of insurance and freight. As a result the customs value of a shipment is less than its CIF value. Congressional Research Service 4 What’s the Difference?—Comparing U.S. and Chinese Trade Data are counted as exports by China, but not as imports by the United States. However, the lag between shipments occurs at the beginning and the end of the year, and thus minimize the effect of timing on the overall trade balance difference. Declaration of Country of Origin The current practice of U.S. Customs is to rely on the declaration of the importer to determine the country of origin. Some analysts believe that importers are misidentifying a significant amount of imports as Chinese. Exchange Rates Because China’s currency, the renminbi (people’s money), is allowed to fluctuate within a small range against a basket of foreign currencies, the exchange rate between the renminbi and the U.S. dollar changes over time. The value of a shipment may change between the date it leaves China and it arrives in the United States due to changes in the exchange rate. Although the renminbi has appreciated against the U.S. dollar over the last few years, exchange rate changes are not considered a major factor in the discrepancy in the trade figures. Non-Technical Explanations Intermediation Although estimates vary, most analysts agree that a large portion of China’s exports arrive in the United States via a third party; Hong Kong being the most commonly identified location. 9 The intermediation of shipments raises two sources of discrepancies. First, the exporter from China may not know that the goods will eventually be shipped to the United States, and will list the third party (e.g. Hong Kong) as its destination, but U.S. Customs will list the source of shipment as being China. Second, the value of the shipment may change—with or without any actual change in the goods—between its arrival in and departure from the third location. As a result, the Chinese export value will be less than the U.S. import value. Under-Invoicing Some analysts believe that Chinese importers may intentionally under value imports from the United States to lower the import tariff due on the shipment. In addition, some analysts believe that Chinese exporters may intentionally under value exports to the United States to maximize their net proceeds overseas for various tax and regulatory reasons. Due to the “hidden nature” of under-invoicing, it is difficult to assess how much this may be contributing to the differences in the trade data. 9 After adjusting for re-exports via Hong Kong, Fung, Lau and Xiong reduced the difference between the U.S. and Chinese trade deficit for 2005 from $87.4 billion to $26.5 billion. Tong estimated that adjustments for re-exports resulted in a $22 billion reduction in the trade balance difference for 2003. Congressional Research Service 5 What’s the Difference?—Comparing U.S. and Chinese Trade Data Implications for Congress The release of the official U.S. annual trade figures has been frequently followed by expressions of concern about the U.S. bilateral trade deficit with China. Peter Morici, a University of Maryland professor, reportedly made the following comment on the 2007 U.S.-China bilateral trade balance, “A gap in exports compared to imports creates a drain on demand for U.S. goods that will push us into a recession.”10 China, however, does not accept the accuracy of the official U.S. figure for the Sino-U.S. trade balance. In 2007, China’s Foreign Ministry spokeswoman, Jiang Yu, said, “Imbalances in ChinaU.S. trade are an objective fact, but this is also related to the two sides’ different statistical methods.”11 Also, when considering means or actions designed to reduce the U.S. trade deficit with China, it is useful to know which goods are the main sources of discrepancies between Chinese and U.S. trade figures, and how important they are in the overall trade flow between the two nations, so that “trade remedies” may be better targeted at the “problem.” According to this report, the main problems appear to be in the trade figures for electrical machinery, machinery, and toys and sporting goods. For those causes of the differences resulting from data compilation—such as misidentification of value or country of origin of imports—Congress may choose to appropriate additional funding for the responsible U.S. agency and/or provide for training or assistance to China’s customs services. In other cases, more detailed analysis of the trade data may be helpful in persuading China to amend or alter its laws, regulations and policies pertaining to the import or export of goods to the United States. Selected Bibliography on the Differences Between U.S. and Chinese Bilateral Trade Figures Adjusted Estimates of United States-China Bilateral Trade Balances—An Update. K.C. Fung, Lawrence J. Lau and Yangyan Xiong. June 2006. Stanford Center for International Development, Working Paper No. 278 7 Since June 2010, China has maintained what it calls a “managed floating exchange rate regime” that allows its (continued...) Congressional Research Service 4 What’s the Difference?—Comparing U.S. and Chinese Trade Data shipment may change between the date it leaves China and the date it arrives in the United States due to changes in the exchange rate. Although the renminbi has appreciated against the U.S. dollar over the last few years, exchange rate changes are not considered a major factor in the discrepancy in the trade figures. Non-Technical Explanations Value Differences in Direct Trade According to two joint China-U.S. studies (see “Joint China-U.S. Studies of Discrepancies” below), about half of the merchandise trade discrepancy between U.S. imports from China and Chinese exports to the United States—or eastbound trade—is attributable to changes in the values of the export price in China and the import value in the United States for goods shipped directly between the two countries. Part of the difference may be caused by mid-shipment transfers in ownership resulting in the new owner adding a markup in the price. Another possible explanation is intentional under-invoicing of exports (see below). Under-Invoicing Some analysts believe that Chinese importers may intentionally under-value imports from the United States to lower the import tariff due on the shipment. In addition, some analysts believe that Chinese exporters may intentionally under-value exports to the United States to maximize their net proceeds overseas for various tax and regulatory reasons. Due to the “hidden nature” of under-invoicing, it is difficult to assess how much this may be contributing to the differences in the trade data. Intermediation Although estimates vary, most analysts agree that a large portion of China’s exports arrive in the United States via a third party, Hong Kong being the most commonly identified location.8 The intermediation of shipments raises two sources of discrepancies. First, the exporter from China may not know that the goods eventually will be shipped to the United States, and may therefore list the third party (e.g., Hong Kong) as its destination, but U.S. Customs may list the source of shipment as being China. Second, the value of the shipment may change—with or without any actual change in the goods—between its arrival in and departure from the third location. The joint China-U.S. study of discrepancies in merchandise trade statistics determined that value differences account for about half of the differences between Chinese and U.S. trade statistics. (...continued) currency to fluctuate within a restricted range on a daily basis. For a more detailed discussion of China’s exchange rate policy, see CRS Report RS21625, China's Currency Policy: An Analysis of the Economic Issues, by Wayne M. Morrison and Marc Labonte. 8 In a 2006 study, Fung, Lau and Xiong reduced the difference between the U.S. and Chinese trade deficit for 2005 from $87.4 billion to $26.5 billion by adjusting the trade data for Hong Kong re-exports. In a 2005 study, Tong estimated that adjustments for re-exports resulted in a $22 billion reduction in the trade balance difference for 2003. In an August 2013 study, Hammer, Jones, and Wang calculated that intermediation by third countries other than Hong Kong accounted for much of the remaining differences between Chinese and U.S. trade statistics after adjustments were made for valuation systems. See selected bibliography at end of report for complete citations of these studies. Congressional Research Service 5 What’s the Difference?—Comparing U.S. and Chinese Trade Data Joint China-U.S. Studies of Discrepancies In April 2004, the 15th JCCT established a statistical working group, with representatives of China’s Ministry of Commerce and General Administration of Customs, and the U.S. Department of Commerce and Office of the USTR. The initial focus of the working group was to examine the “unusually large and growing statistical discrepancies in the bilateral merchandise trade data officially published by [the] two countries.”9 It was subsequently decided to conduct a reconciliation study to determine the causes of the discrepancies. However, it was agreed that the results of the study were not intended to imply errors in either nation’s statistical systems and/or methods of calculating official merchandise trade data. Under the auspices of the U.S.-China Joint Commission on Commerce and Trade (JCCT), China’s Ministry of Commerce and the U.S. Department of Commerce and Office of the U.S. Trade Representative (USTR) have conducted two studies to determine the causes of the statistical discrepancies in the official merchandise trade data reported by both nations. The first report was released in October 2009; the second in December 2012. The main conclusions of the two studies are largely the same. The greatest discrepancy is in the “eastbound trade” data, which accounts for 80%-90% of the overall difference in annual trade balance. Roughly half of the “eastbound trade” data discrepancy can be attributed to goods that “leave China, enter the commerce of intermediate countries or regions, and then [are] re-exported to the United States.”10 Implications for Congress The release of the official U.S. annual trade figures has been frequently followed by expressions of concern about the size of U.S. bilateral trade deficit with China. According to official U.S. trade figures, the bilateral trade deficit with China in 2014 was more than four times the size of the next largest bilateral trade deficit (Germany, $73.7 billion) and greater than the sum of the next seven largest bilateral trade deficits.11 China, however, does not accept the accuracy of the official U.S. figure for the Sino-U.S. trade balance. In 2007, China’s Foreign Ministry spokeswoman, Jiang Yu, said, “imbalances in ChinaU.S. trade are an objective fact, but this is also related to the two sides’ different statistical methods.”12 Also, when considering means or actions designed to reduce the U.S. trade deficit with China, it is useful to know which goods are the main sources of discrepancies between Chinese and U.S. trade figures, and how important they are in the overall trade flow between the two nations, so 9 Report of the Statistical Discrepancy of Merchandise Trade Between the United States and China, Hangzhou, China, October 2009. 10 Ibid. 11 The next seven largest bilateral trade deficits in 2014, in order, were Germany—$73.7 billion; Japan—$67.0 billion; Mexico—$53.8 billion; Canada—$33.9 billion; Saudi Arabia—$28.4 billion; Ireland—$ 26.2 billion; and South Korea—$25.1 billion; for a total of $333.2 billion—$9.4 billion less than that of China. 12 Washington Trade Daily, February 16, 2007. Congressional Research Service 6 What’s the Difference?—Comparing U.S. and Chinese Trade Data that “trade remedies” may be better targeted at the perceived problem. According to this report, the main problems appear to be in the trade figures for electrical machinery, machinery, and toys and sporting goods. For those causes of the differences resulting from data compilation—such as misidentification of value or country of origin of imports—Congress may choose through oversight or other means to encourage the responsible U.S. agency to examine and adjust its procedures for compiling trade data. In addition, Congress may decide to press or otherwise encourage China’s customs services to conduct a similar review of its trade compilation procedures. In other cases, more detailed analysis of the trade data may be helpful in persuading China to amend or alter its laws, regulations, and policies pertaining to the import or export of goods to the United States. Selected Bibliography on the Differences Between U.S. and Chinese Bilateral Trade Figures “Accounting for Discrepancies in Bilateral Trade: The Case of China, Hong Kong, and the United States,” by Michael J. Ferrantino and Zhi Wang, China Economic Review, vol. 19 (2008), pp. 502-520. Adjusted Estimates of United States-China Bilateral Trade Balances—An Update. K.C. Fung, Lawrence J. Lau and Yangyan Xiong. June 2006. Stanford Center for International Development, Working Paper No. 278. Methodology of U.S.-China-Hong Kong Triangular Merchandise Trade Statistic Reconciliation. Alexander Hammer, Lin Jones, and Zhi Wang. August 2013. Office of Economics Research Note, U.S. International Trade Commission, No. RN-2013-08A. Report on the Statistical Discrepancy of Merchandise Trade Between the United States and China, Report by the Joint Commission on Commerce and Trade Statistical Working Group, October 2009. The Second Phase Report on the Statistical Discrepancy of Merchandise Trade between the United States and China, Report by the Joint Commission on Commerce and Trade Statistical Working Group, December 2012. Statistical Differences in Sino-US Trade Balance. February 12, 2007. China Online. http://chinaculture.about.com/library/china/whitepaper/blstrade2.htm The U.S.-China Bilateral Trade Balance: Its Size and Determinants. Robert C. Feenstra, Wen Hai, Wing T. Woo, and Shunli Yao. May 1998. Paper presented at the UNDP-HIID Conference on China’s Integration in the Global Economy, January 17, 1998. The U.S.-China Trade Imbalance: How Big Is It Really? Sarah Y. Tong. March 2005. China: An International Journal. Volume 3, No. 1, pp. 131-154. 10 David Goldman and Chris Isidore, “1st Annual Trade Gap Drop in 6 Years,” CNN Money, February 14, 2008. 11 Washington Trade Daily, February 16, 2007. Congressional Research Service 67 What’s the Difference?—Comparing U.S. and Chinese Trade Data Author Contact Information Michael F. Martin AnalystSpecialist in Asian Trade and FinanceAffairs mfmartin@crs.loc.gov, 7-2199 Congressional Research Service 78