"10+2" Surplus Transfer In Sino-US Trade

Beginning from the 1990's, rapid escalation of Sino-American trade surplus, along with uninterrupted increase of China foreign reserve to record levels, contributes to increasing trade tension between China and US, RMB currency is now facing an unprecedented pressure to appreciate from the US government. The ever increasing trade imbalance intensifies problems and strains to Sino-American relationship, China export as well as RMB currency valuation, attracting broad interests and debates from the academia. At present, there are a number of conventional viewpoints on root causes of the trade imbalance: First is the domestic economic imbalance of the US; Second is the high-tech products' export limitation imposed by the US government; Third is the use of cheap Chinese labor through FDI for product procession and subsequently sell back to the US; Fourth is the difference on accounting methods and the statistical standards; Fifth is the application of Rules of Origin, which double counts Hong Kong's harbor exports also as China's export to the US.Apart from these established perspectives, this thesis attempts to analyze the causes of the trade surplus from a fresh new angle: the Sino-American trade surplus is transferred from the Asean 10 countries along with Japan and Korea (we call it "10+2" in this thesis).Through detailed, quantitative analysis of data over the past 22 years (1985 -2006), combined with the qualitative analysis of industrial evolution and manufacture outsourcing, this thesis concludes:Asia-Pacific industrial division has developed from the East-Asia "Flying geese pattern" to today's post "Flying geese pattern" featuring both vertical and horizontal outsourcing and integration on global scale. Taking advantage of cheaper Chinese labor cost, Japan, Korea and some new industrial countries in Asean-10 countries like Singapore transferred their labor-intensive portions of their respective industries to the "world factory" — China as they try to streamline their manufacturing efficiency. Under this scenario, these countries' US trade surplus is transferred to China as China imports materials and parts from these countries and exports the final manufactured products to the US. The tables and charts in this thesis indisputably shows, in the past 20 years, while the US trade deficit against "10+2" countries decreased, US trade deficit against China increased proportionally, overall the deficit against "10+3" as a whole didn't see much changes. This phenomena confirmed the conclusion of this thesis, the Sino-American trade surplus originated from the transferring of the "10+2" countries. In short, the Sino-U.S. trade surplus is a result of industrial supply and manufacturing chain evolution in Asia-Pacific region, with China becoming the manufacturing centre, Asean and East Asian countries as the raw material and parts suppliers, and developed countries such as US evolving into R&D centers and main export markets. Even though China took the blame for the whole Asia-Pacific region as the deficit producer, the truth is, it merely replaced the "10+2" countries as the main export platform to the US, and earned very lean margins from commodity manufacturing while doing it.