Discussion Papers

No.819 Trade in Factor Income and the US-China Trade Balance

by Bo Meng, Yuning Gao, Jiabai Ye, Meichen Zhang, Yuqing Xing

June 2021


Numerous the US multinational enterprises sold considerable amounts of products, which were "made" in China or third countries, to China’s domestic consumers, but these sales were not counted as the US exports to China. We propose a beyond-border-type measure, "trade in factor income," that defines the US-owned factor-income induced by China’s final demand as the US export to China. Based on this measure, we find that the conventional cross-border trade statistics averagely leads to 17.4-32.0% overestimation of the US-China trade deficit (2005-2016). Our new measure helps a great transformation of trade measures from the territory-based "made in" label to income-based "created by" label.

Keywords: trade in factor income, trade in value added, trade balance, global value chain, the US-China trade

JEL classification: F6, F10, F21, F23, D57

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