Abstract
This paper studies the nature of US–China trade in advanced technology products (ATP). China's recent surge in ATP exports has promoted active debate about the implications for both China's economic growth and US competitiveness. We evaluate the development of both countries’ ATP trade classification systems. Although the definition of ATP for statistical purposes is largely convergent, China adopts multiple definitions of ATP, some of which are associated with export promotion and foreign direct investment (FDI) policy. We develop a method to compare US and Chinese trade data that combines the strengths of both countries’ trade statistics and accounts for re-exports through Hong Kong. The emergence of China as a major exporter of ATP goods to the US, coinciding approximately with China's WTO accession is strongly associated with processing trade and production fragmentation, foreign-invested enterprises, and the use of economic policy zones, more so than for Chinese exports as a whole. This evidence demonstrates that China's pattern of exports has been strongly influenced by government policies.
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Notes
This concern is mentioned in particular by Abbott et al. (1989) in their development of the Census ATP classification. For contemporaneous discussions about the relationship between high-technology trade and industrial policy, see Wachter and Wachter (1981) and Thurow (1985).
For example, the industry group described by ITA as ‘Office and Computing Machines’ included scales, balances, cash registers, calculators, dictation records and adding machines as well as computers (Abbott et al., 1989, p. 4). Arguably, these products are very different from each other in the extent to which they embody innovative or leading-edge technologies.
‘HTS’ is used here as a contraction for ‘HTSUSA’ (Harmonized Tariff System of the United States of America), the US national implementation of the Harmonized System (HS) of the World Customs Organization. The HS defines internationally comparable products on a six-digit (HS-6) basis. Individual countries can add sub-classifications to this scheme for tariff administration or reporting purposes. The finest available set of categories in the HTSUSA is on a 10-digit (HTS-10) basis. It is important to note that though ATP are classified by 10 digit HTS codes, even at such a detailed level, each 10 digit HTS code does not necessarily represent a single homogenous product. Where several products are classified under one 10 digit HTS code, Census analysts determine whether there are sufficient high-tech products to warrant ATP classification for that HTS code.
The 10 Census ATP technology fields are as follows, with examples of ATP products in each category: (1) Biotechnology (human and animal vaccines); (2) Life Sciences (MRI apparatus, electrocardiographs, artificial joints); (3) Opto-Electronics (rangefiners, stereoscopic microscopes, lasers other than laser diodes); (4) Information and Communications (personal computers, fax machines, communications satellites, camcorders); (5) Electronics (particle accelerators, semiconductors, ‘smart’ cards); (6) Flexible Manufacturing (industrial robots, thermostats, semiconductor manufacturing equipment); (7) Advanced Materials (optical fiber cables); (8) Aerospace (turbo jet aircraft engines, new multi-engine airplanes); (9) Weapons (guided missiles, self-propelled artillery weapons); and (9) Nuclear Technology (nuclear reactors, uranium compounds enriched in U235).
See US International Trade Commission (2007) for further background.
We use HNTP Export Products Catalogue to denote China's High and New Technology Export Products Catalogue (2000, revised 2003 and 2006), used for VAT rebates for exporters. The other two policy-oriented catalogues are the Foreign Investment Promotion and New Technology Product Catalogue (2003, revised 2007), providing industrial policy guidance for foreign investors; and China's High and New Technology Products Catalogue (2000, revised 2006), for enterprise income tax benefits and for general recognition as a high-technology enterprise.
See Ferrantino et al. (2007), especially pp. 18–28.
These descriptions were generated by a concordance with ISIC.
One may be concerned that the composition of production and trade at a finer level than HS-6 varies a lot across countries. But we actually have two measures of the same trade flow (US exports to China=China's imports from the US), and vice versa. Thus, the actual maintained assumption is simply that the degree of over- or under-reporting in Chinese data relative to US data is constant for each HTS-10 code within an HS-6 code. Since the identification of certain HTS-10 codes, as ATP is only observable in the US data, this assumption is necessary.
See Ferrantino and Wang (2008) for a fuller treatment of issues involving trade data reconciliation among China, Hong Kong, and the US.
The approximate coincidence of the shift in the ATP trade balance with the timing of China's WTO accession is presented here as a stylized fact, rather than as an analysis of causation.
The new Chinese corporate income tax law, which became effective in 2008, equalized the standard rate applied to FIEs and domestic enterprises. China has also recently removed some products from eligibility for processing trade benefits. These steps may reflect recognition by the Chinese authorities that the previous pattern of incentives had a net distorting effect, and it may presage further moves to reduce, at least partially, the benefits associated with SEZs.
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Ferrantino, M., Koopman, R., Wang, Z. et al. The Nature of US–China Trade in Advanced Technology Products. Comp Econ Stud 52, 207–224 (2010). https://doi.org/10.1057/ces.2010.6
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DOI: https://doi.org/10.1057/ces.2010.6