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

CRS Report for Congress
Prepared for Members and Committees of Congress
What’s the Difference?—Comparing U.S. and
Chinese Trade Data
Michael F. Martin
Specialist in Asian Affairs
February 24, 2012
Congressional Research Service
7-5700
www.crs.gov
RS22640
What’s the Difference?—Comparing U.S. and Chinese Trade Data
Congressional Research Service
Summary
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 2011 bilateral trade
deficit with China was $295.5 billion. According to China, its trade surplus with the United States
was $206.2 billion—$89.3 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 three-quarters of the difference in the value of China’s exports to the United States is
attributable to five types of goods. Those five types of goods, in order of the size of the
discrepancy, are electrical machinery; toys and sporting goods; machinery; footwear; and
furniture.
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 an
October 2009 joint China-U.S. report 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.
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.
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
Congressional Research Service
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 ................................................................................................................... 4
Non-Technical Explanations ...................................................................................................... 5
Value Differences in Direct Trade ....................................................................................... 5
Under-Invoicing .................................................................................................................. 5
Intermediation ..................................................................................................................... 5
Implications for Congress ................................................................................................................ 6
Selected Bibliography on the Differences Between U.S. and Chinese Bilateral Trade
Figures .......................................................................................................................................... 6
Tables
Table 1. U.S. and Chinese Trade Figures, 2001-2011 ...................................................................... 2
Table 2. Top Five Discrepancies for U.S. Imports from China, 2011 .............................................. 3
Contacts
Author Contact Information............................................................................................................. 7
What’s the Difference?—Comparing U.S. and Chinese Trade Data
Congressional Research Service 1
Introduction
The U.S. 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.
Debate over this trade deficit is hampered because of 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 2011 of $295.5
billion in the process. However, according to the Chinese, its trade surplus with the United States
in 2010 was only $206.2 billion—$89.3 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 End the Trade Deficit Act (H.R. 1875) introduced
during the 111th Congress would have established the Emergency Commission to End the Trade
Deficit to “develop a trade policy plan to eliminate the United States merchandise trade deficit by
January 1, 2019.” Among the bill’s findings is “The People’s Republic of China, Canada, Mexico,
and Japan account for one-half of the [U.S.] trade deficit alone.”
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
2011, using official trade data.1 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 has grown.
From the U.S. perspective, its bilateral trade deficit with China more than trebled in value over
the last decade, from just over $83 billion in 2001 to over $295 billion in 2011. However, from
the Chinese view, its bilateral trade surplus with the United States increased more than sevenfold,
from about $28 billion in 2001 to nearly $171 billion in 2008.
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 generally been $10 billion or
less since 2001, China’s figures for its exports to the United States differed by $48.0 billion in
2001 and $81.8 billion in 2010.
1 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 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 are discussed later in this report.
What’s the Difference?—Comparing U.S. and Chinese Trade Data
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Table 1. U.S. and Chinese Trade Figures, 2001-2011
(billion U.S. dollars)
Year
U.S. Trade Figures Chinese Trade Figures
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
Source: Global Trade Atlas, U.S. International Trade Commission.
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 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 2011. 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), furniture (94), and toys and sporting
goods (95)—account for over 82.1% 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. They were also the top five ranked chapters in terms of the value of imports from
China, according to the United States, and accounted for 63.5% of the total value of imports in
2011. Four of the sources of discrepancies were also the top four sources of exports to the United
States, according to China. According to China, footwear was the seventh-largest export to the
United States.
What’s the Difference?—Comparing U.S. and Chinese Trade Data
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Table 2. Top Five Discrepancies for U.S. Imports from China, 2011
(billion dollars)
HS Chapter
U.S. Imports
from China
(U.S. data)
China’s Exports
to U.S.
(China Data) Difference
Electrical Machinery (85) 98.693 67.979 30.714
Machinery (84) 94.854 82.033 12.821
Toys & Sporting Goods (95) 22.624 12.340 10.284
Footwear (64) 16.723 11.935 4.788
Furniture (94) 20.490 17.518 2.971
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 one chapter 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 fruit (12); 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. Conversely, China’s official
imports from the United States of aluminum (76) were more than $1 billion less 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. This indicates 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.
What’s the Difference?—Comparing U.S. and Chinese Trade Data
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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,2 and uses the “cost, insurance, and freight” (C.I.F.) definition3 to evaluate
imports. The United States, however, reports its exports evaluated by using the “freight along
side” (F.A.S.) definition4 and values imports using a customs definition.5 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, 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, 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 may
2 “Free on board” includes the cost of getting the goods to port and loading them onto the ship.
3 The C.I.F. definition adds the cost of insurance and shipping (freight) to the value of the imported goods.
4 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.
5 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.
What’s the Difference?—Comparing U.S. and Chinese Trade Data
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change over time.6 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, 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.7 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 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.
6 This remains China’s official exchange rate policy. However, since September 2008, the relative value of the
renminbi to the U.S. dollar has been comparatively constant after appreciating over 21% over the previous three years.
7 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.
See selected bibliography at end of report for complete citations of these studies.
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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. A 2010 study by the Economic Policy
Institute concluded that 2.4 million jobs were lost or displaced between 2001 and 2008 by
growing trade deficits with China.8
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-
U.S. trade are an objective fact, but this is also related to the two sides’ different statistical
methods.”9
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, toys and
sporting goods, footwear, and furniture.
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
“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.
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.
8 Robert E. Scott, Unfair China Trade Costs Local Jobs, Economic Policy Institute, EPI Briefing Paper #260,
Washington, DC, March 23, 2010.
9 Washington Trade Daily, February 16, 2007.
What’s the Difference?—Comparing U.S. and Chinese Trade Data
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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.

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