What’
What's the Difference?—Comparing U.S. and
Chinese Trade Data
Michael F. Martin
Specialist in Asian Affairs
March 31, 2014
Congressional Research Service
7-5700
www.crs.gov
RS22640
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 2013 bilateral trade
deficit with China was $318.4 billion. According to China, its trade surplus with the United States
was $222.4 billion—$96.0 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
nearly 87% of the difference in the value of China’s exports to the United States in 2013 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
woven apparel.
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, including two
joint China-U.S. reports on statistical discrepancies in merchandise trade data. 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. The
working group has released two reconciliation studies 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: Summary of the Literature .................................................................. 3
Technical Explanations .............................................................................................................. 4
Official Definitions of Exports and Imports........................................................................ 4
Definition of Territory ......................................................................................................... 4
Timing ................................................................................................................................. 4
Declaration of Country of Origin ........................................................................................ 4
Exchange Rates ................................................................................................................... 5
Non-Technical Explanations...................................................................................................... 5
Value Differences in Direct Trade ....................................................................................... 5
Under-Invoicing .................................................................................................................. 5
Intermediation ..................................................................................................................... 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 .......................................................................................................................................... 7
Tables
Table 1. U.S. and Chinese Trade Figures, 2001-2013 ..................................................................... 2
Table 2. Top Five Discrepancies for U.S. Imports from China, 2013.............................................. 3
Contacts
Author Contact Information............................................................................................................. 8
Congressional Research Service
What’s the Difference?—Comparing U.S. and Chinese Trade Data
Introduction
The U.S. merchandise trade deficit with the People’s Republic of China (China) remains 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 in 2013 of $318.4 billion.
However, according to official Chinese figures, China’s trade surplus with the United States in
2013 was only $222.4 billion—$96.0 Chinese Trade Data
March 24, 2016
(RS22640)
Jump to Main Text of Report
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 and import-sensitive firms.
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 2015 bilateral trade deficit with China was $367.6 billion. According to China, its trade surplus with the United States was $260.9 billion—a $106.6 billion difference.
This paper examines the differences in the trade data from the two nations in two ways. First, it compares the trade figures using the Harmonized Commodity Description and Coding System (Harmonized System) to discern any patterns in the discrepancies between the U.S. and Chinese data. This comparison reveals that over 90% of the difference in the value of China's exports to the United States in 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. 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.
In light 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 Working Group stated that 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.
What's the Difference?—Comparing U.S. and Chinese Trade Data
Introduction
The U.S. merchandise trade deficit with the People's Republic of China (China) remains 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 in 2015 of $367.6 billion. However, according to official Chinese figures, China's trade surplus with the United States in 2015 was only $260.9 billion—$106.6 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 example, the Emergency China Trade Act (H.R. 2909) introduced
during the
112th112th 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 113th Congress.
in 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
2013 2015, using official trade data.
22 According to both countries, the U.S. trade deficit with China is
large and growing.
3 Where the two sides differ is how big the deficit is and how fast it has grown.
From the U.S. perspective, its bilateral trade deficit with China more than
trebledquadrupled in value over
the last
decade14 years, from just over $83 billion in 2001 to over $
318367 billion in
20132015. However, from
the Chinese view, its bilateral trade surplus with the United States increased
eightnine-fold, from
about $28 billion in 2001 to more than $
222237 billion in
2013.
2015.
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.
03 billion in
2001 and $
96.074.7 billion in
20132015. 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 using the “Customs value” method. The implications of the different evaluation methods are discussed later in
the report.
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What’s the Difference?—Comparing U.S. and Chinese Trade Data
import figures for bilateral trade has been rising in recent years.
Table 1. U.S. and Chinese
Merchandise Trade Figures, 2001-
2013
(billion U.S. dollars)
Chinese Trade Figures
U.S. Trade Figures
Year
Exports to
China
(F.A.S.)
Imports
from
China
(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
Source: 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 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 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 use the same HS chapters, it is possible to compare the trade data at this
level.
Table 2 lists in rank order the top five HS chapters according to the difference between the
figures for U.S. imports from China and Chinese exports to the United States for 2013. In all five
cases, the U.S. import figures exceeded China’s export figures. The top five HS chapters—woven
apparel (62), footwear (64), machinery (84), electrical machinery (85), and toys and sporting
goods (95)—account for nearly 86% of the difference between the U.S. and Chinese figures.
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What’s the Difference?—Comparing U.S. and Chinese Trade Data
All five of these chapters also ranked high according to both countries in terms of their absolute
value of trade. With the exception of woven apparel, 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 63.8% of the total value of imports in 2013. Three of the sources of
discrepancies—electrical machinery, machinery, and woven apparel—were also the top five
sources of exports to the United States, according to China. According to China, footwear was the
sixth-largest export to the United States and toys and sporting goods were the seventh-largest.
Table 2. Top Five Discrepancies for U.S. Imports from China, 2013
(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)
117.532
82.747
34.785
Machinery (84)
100.445
86.589
13.856
Toys & Sporting Goods (95)
21.683
12.891
8.792
Footwear (64)
17.009
13.255
3.754
Woven Apparel (62)
14.901
13.394
1.507
Source: Global Trade Atlas, U.S. International Trade Commission.
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 no chapters where U.S. exports exceeded Chinese
imports by more than $1 billion. China’s officially reported imports from the United States of
organic chemicals (29); miscellaneous chemical products (38); 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
since 2001, indicating a systemic difference in the evaluation of the bilateral trade of these goods.
Explaining the Differences:
Summary of the Literature
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.
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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.) definition,3 and uses the “cost, insurance, and freight” (C.I.F.) definition4 to evaluate
imports. The United States, however, reports its exports evaluated by using the “free alongside”
(F.A.S.) definition5 and values imports using a customs definition.6 As a result, official U.S. trade
data place 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 using the same definition, such as the general international convention 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. 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
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.
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.
5
Unlike F.O.B., F.A.S. does not include the costs of clearing the goods for export and loading the goods. As a result,
the FAS value of a shipment is less than its FOB value.
6
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.
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What’s the Difference?—Comparing U.S. and Chinese Trade Data
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 may change over time.7 The value of a
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 a joint China-U.S. study (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
7
Since June 2010, China has maintained what it calls a “managed floating exchange rate regime” that allows its
currency to fluctuate within a restricted range on a daily basis. Over the last four years, the renminbi has strengthened
relative to the U.S. dollar from 6.79 yuan = $1 to 6.22 yuan = $1, or an appreciation of about 9%. 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.
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What’s the Difference?—Comparing U.S. and Chinese Trade Data
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.
Joint China-U.S. Studies of Discrepancies
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.
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.
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 2013 was more than four times the size of
the next largest bilateral trade deficit (Japan, $73.4 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 China-
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 2013, in order, were Japan—$73.4 billion; Germany—$67.2 billion;
Mexico—$54.3 billion; Saudi Arabia—$32.8 billion; Canada—$31.7 billion; Ireland—$ 25.0 billion; and Italy—$22.1
billion; for a total of $306.5 billion—$11.9 billion less than that of China.
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What’s the Difference?—Comparing U.S. and Chinese Trade Data
U.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
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 to appropriate additional funding for
the responsible U.S. agency to examine and adjust its procedures for compiling trade data. In
addition, Congress may decide to provide funding for training or assistance to 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 2015
(billion U.S. dollars)
U.S. Trade Figures
|
Chinese Trade Figures
|
Year
|
Exports to China (F.A.S.)
Imports from China (C.V.)
Trade Balance
|
Exports to United States (F.O.B.)
Imports from United States (C.I.F.)
Trade Balance
|
|
2001
|
19.396
|
102.570
|
-83.174
|
54.277
|
26.204
|
28.073
|
|
2002
|
22.317
|
125.498
|
-103.181
|
69.959
|
27.228
|
42.731
|
|
2003
|
28.646
|
152.974
|
-124.328
|
92.510
|
33.883
|
58.627
|
|
2004
|
34.833
|
197.456
|
-162.623
|
124.973
|
44.653
|
80.320
|
|
2005
|
41.874
|
244.699
|
-202.825
|
162.939
|
48.735
|
114.204
|
|
2006
|
54.813
|
289.246
|
-234.433
|
203.516
|
59.222
|
144.294
|
|
2007
|
64.313
|
322.975
|
-258.662
|
232.761
|
69.861
|
162.900
|
|
2008
|
71.346
|
339.581
|
-268.235
|
252.327
|
81.486
|
170.841
|
|
2009
|
70.636
|
297.872
|
-227.236
|
220.706
|
77.433
|
143.273
|
|
2010
|
93.059
|
366.126
|
-273.067
|
283.184
|
101.310
|
181.873
|
|
2011
|
105.445
|
400.632
|
-295.187
|
324.300
|
118.121
|
206.180
|
|
2012
|
111.855
|
426.792
|
-314.937
|
351.884
|
127.755
|
224.129
|
|
2013
|
122.827
|
441.621
|
-318.794
|
368.349
|
145.926
|
222.423
|
|
2014
|
124.747
|
467.940
|
-343.193
|
396.082
|
159.036
|
237.046
|
|
2015
|
116.817
|
484.371
|
-367.554
|
409.648
|
148.736
|
260.912
|
Source: China's General Administration of Customs, U.S. Bureau of Economic Analysis (BEA).
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 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 product's 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 use the same HS chapters, it is possible to compare the trade data at this level.
Table 2 lists in rank order the top five HS chapters according to the difference between the figures for U.S. imports from China and Chinese exports to the United States for 2015. In all five cases, the U.S. import figures exceeded China's export figures. The top five HS chapters—footwear (64), machinery (84), electrical machinery (85), optical and medical instruments (90), and toys and sporting goods (95)—account for over 98% of the difference between the U.S. and Chinese figures.
All five of these chapters also ranked high according to both countries in terms of their absolute value of trade. With the exception of optical and medical equipment, 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 60.1% of the total value of imports in 2015. Four of the sources of discrepancies—footwear, electrical machinery and 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, 2015
(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)
|
133.026
|
95.502
|
37.524
|
|
Machinery (84)
|
103.970
|
84.388
|
19.582
|
|
Toys and Sporting Goods (95)
|
24.494
|
15.157
|
9.337
|
|
Footwear (64)
|
17.277
|
14.094
|
3.183
|
|
Optical and Medical Equipment (90)
|
11.023
|
9.915
|
1.108
|
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 four chapters where U.S. exports exceeded Chinese imports by more than $1 billion. China's officially reported imports from the United States of footwear (61); machinery (84); electrical machinery (85); optical and medical equipment (90); and toys and sporting equipment (95) were more than $1 billion greater than the official U.S. exports to China. By contrast, China's official import statistics for knit apparel (61); artificial flowers and feathers (67); ceramic products (69); and railway equipment (86) were more than $1 billion less that official U.S. figures.
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 since 2001, indicating a systemic difference in the evaluation of the bilateral trade of these goods.
Explaining the Differences: Literature 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 non-administrative sources.
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.) terms,4 and evaluates imports using "cost, insurance, and freight" (C.I.F.) terms.5 The United States, however, reports its exports using "free alongside" (F.A.S.) terms6 and values imports using a customs definition.7 As a result, official U.S. trade data place 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 evaluated using the same terms. The use of F.O.B. for exports and C.I.F. for imports is a common, but not universal, international practice.8
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 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.9 The value of a 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 (despite a modest decline since August 2015), 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. More recently, bilateral trade figures may have been distorted by "phantom goods" shipments from China to the United States (and other locations) used to disguise attempts to move financial capital offshore.10 Due to the "hidden nature" of under-invoicing, it is difficult to assess how much, if at all, this may be contributing to the differences in the trade data.
Intermediation
Although estimates vary, many 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.11 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.
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."12 The Working Group subsequently decided to conduct a reconciliation study to determine the causes of the discrepancies. However, the Working Group stated 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."13
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 2015 was more than four times the size of the next largest bilateral trade deficit (Germany, $74.2 billion) and greater than the sum of the next nine largest bilateral trade deficits.14
China has not accepted the accuracy of the official U.S. figure for the Sino-U.S. trade balance for at least two decades. A 1997 White Paper issued by China's State Council, "On Sino-US Trade Balance," states, "Statistics and analyses prove it true that Sino-US trade has been in favour of China in recent years, but it is obvious that the size of the US deficit has been largely exaggerated by the US side."15 In 2007, China's Foreign Ministry spokeswoman, Jiang Yu, said, "imbalances in China-U.S. trade are an objective fact, but this is also related to the two sides' different statistical methods."16
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 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
12
Washington Trade Daily, February 16, 2007.
Congressional Research Service
7
What’s the Difference?—Comparing U.S. and Chinese Trade Data
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.
Author Contact Information
Michael F. Martin
Specialist in Asian Affairs
mfmartin@crs.loc.gov, 7-2199
Congressional Research Service
8
Author Contact Information
[author name scrubbed], Specialist in Asian Affairs
([email address scrubbed], [phone number scrubbed])
Footnotes
| 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 using the "Customs value" method. The implications of the different evaluation methods are discussed later in the report.
|
| 3.
|
There was a one-year decline in 2008, following the global financial crisis.
|
| 4.
|
"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."
|
| 5.
|
The C.I.F. definition adds the cost of insurance and shipping (freight) to the value of the imported goods.
|
| 6.
|
Unlike F.O.B., F.A.S. does not include the costs of clearing the goods for export and loading the goods. As a result, the FAS value of a shipment is less than its FOB value.
|
| 7.
|
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.
|
| 8.
|
The United Nations Department of Economic and Social Affairs Statistics Division, for example, recommends this practice. See "International Merchandise Trade Statistics: Concepts and Definitions," paragraph 116 (http://unstats.un.org/unsd/publication/SeriesM/SeriesM_52rev2E.pdf). Several countries, however, do not follow this recommendation, according to the United Nations International Trade Statistics Knowledgebase (http://unstats.un.org/unsd/tradekb/Knowledgebase/Trade-valuation).
|
| 9.
|
Since June 2010, China has maintained what it calls a "managed floating exchange rate regime" that allows its 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 [author name scrubbed] and [author name scrubbed].
|
| 10.
|
Enda Curran, "Phantom Goods Disguise Billions in China Illicit Money Flows," Bloomberg, March 8, 2016.
|
| 11.
|
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.
|
| 12.
|
Report of the Statistical Discrepancy of Merchandise Trade Between the United States and China, Hangzhou, China, October 2009.
|
| 13.
|
Ibid.
|
| 14.
|
The next seven largest bilateral trade deficits in 2015, in order, were Germany—$74.2 billion; Japan—$68.6 billion; Mexico—$58.3 billion; Vietnam—$30.9 billion; Ireland—$30.4 billion; South Korea—$28.3 billion; Italy—$27.8 billion; India—$23.2 billion; and Malaysia—$21.5 billion.
|
| 15.
|
Information Office of the State Council Of the People's Republic of China, On Sino-US Trade Balance, March 1997, http://www.chinaembassy.lt/eng/zt/zfbps/t125247.htm.
|
| 16.
|
Washington Trade Daily, February 16, 2007.
|