The United States and China have long disagreed on the size of the bilateral trade deficit. To determine why large discrepancies exist between US and PRC calculations of bilateral trade statistics, US and PRC agencies formed the Joint Commission on Commerce and Trade Statistical Working Group, which recently released a report. The report used trade data from 2000, 2004, and 2006 to explain the differences in calculation methodologies that led to large data discrepancies (see the table below). Because Chinese exports to the United States tend to account for roughly 90 percent of the inconsistencies (95 percent in 2006), the working group focused on Chinese exports. The report’s findings account for about 90 percent of the differences in trade tracked by US and PRC agencies—the US International Trade Commission (ITC), US Department of Commerce (DOC), PRC General Administration of Customs, and PRC Ministry of Commerce (MOFCOM).

Intermediary costs of shipping

When a product passes through other countries en route to its final destination, new tariff, re-sale, and processing costs add to the total cost of the product. In such cases, US agencies consider the total cost of that good a Chinese export; PRC agencies attribute only the original export value to Chinese exports. In addition, Chinese goods destined for an intermediary country may be recorded as exports to the intermediary country rather than to the United States.

The top intermediary location for Chinese exports bound for the United States is Hong Kong. The working group found that data discrepancies caused by shipments via Hong Kong accounted for 25.8 percent ($21.7 billion) of total statistical discrepancies in 2006. Shipments through other intermediary countries in 2006 accounted for another $22.3 billion, or 26.5 percent of the total statistical discrepancies.

Intermediary parties mark up prices

Chinese exporters typically do not sell goods directly to US purchasers, even when the goods are shipped directly from China to the United States. Instead, goods are purchased by intermediary parties that mark up the price of the products before selling them to US importers. ITC and DOC thus record higher import prices than the PRC agencies’ recorded values of export. According to the working group’s report, such markups accounted for $21 billion, or 25 percent of total statistical discrepancies, in 2006.

Other factors

The report lists several methodological factors that contribute to statistical differences:

  • Timing of record  Shipping time creates lags in import and export figures—a shipment that leaves China in December may arrive in January and consequently be included in the following year’s data. Timing of record was responsible for $2.7 billion of total statistical discrepancies in 2006.
  • Territory definitions  The United States includes Puerto Rico and the US Virgin Islands as part of its customs territory, whereas China treats them as separate jurisdictions. Discrepancies attributed to this difference totaled about $700 million in 2006.
  • Re-exports  Because ITC and DOC consider re-export of goods that originate from other countries exports from the country of origin, some goods that China counts as Chinese exports are not included in US calculations of Chinese imports. Re-exports made up only about $3 billion of the 2006 discrepancy.

The report concluded that discrepancies caused by these differences in methodology have “minimal net impact” on the total discrepancy. Roughly 10 percent of the statistical discrepancy in Chinese exports to the United States remains unaccounted for, leaving open the possibility that other methodological differences may contribute to disparities.

Implications for evaluating the trade deficit

One implication of these findings is that US trade statistics on imports from China may be somewhat inflated, while PRC statistics on exports to the United States may not account for the full value. Because ITC and DOC include intermediary price markups in their assessment of Chinese imports, and US exports are recorded before price markups occur for US goods heading to China, the US trade statistics show a deficit that may be larger than the actual deficit between the two countries.

CMI table

[author]This article is adapted from a report that first appeared in China Market Intelligence, the US-China Business Council’s (USCBC) members-only newsletter. To find out more about USCBC member company benefits, see www.uschina.org/benefits.html.[/author]

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