Re-examining the trade competitiveness between USA and China: Empirical evidence from prominent international trade measures

Abstract

The study re-examined the pattern of bilateral trade and extent of trade competitiveness between USA and China. Since both countries seem to be the largest bilateral trading partners in the world and the two largest economies in terms of gross domestic product, it is imperative to re-examine the bilateral trade relationship between them empirically. Previous studies have employed non econometric approaches to examine the effects of trade competitiveness on the volume and structure of bilateral exports between USA and China. However, this study adopts prominent international trade measures such as Revealed Comparative Advantage Index, Export Similarity Index and an econometric technique, the Gravity-Autoregressive Distributive Lag model to empirically analyze data spanning from 1992 to 2020 sourced from World Integrated Trade Solution (WITS) database. The results revealed that USA and China export similar but differentiated products and it is the product differentiation that explains the huge volume of trade between them despite export similarity. Furthermore, the study discovered that there exists a moderate trade competitive but great trade complementary relationship between USA and China. Meanwhile, the study also found that a decrease in the extent of trade competitiveness between China and USA will significantly lead to an increase in the volume of bilateral exports between USA and China while an increase in the extent of trade competitiveness between China and USA will significantly lead to a decrease in the volume of bilateral exports between USA and China. Therefore, both countries will substantially benefit from trade if they cooperate rather than compete.