The “International Trade Research Trend” section aims to release the latest research findings in the field of international trade published in authoritative Chinese journals such as “Social Sciences in China,” “Economic Research Journal,” “Journal of Management World,” “China Economic Quarterly,” and “The Journal of World Economy.” It strives to provide everyone with timely, accurate, and high-quality front-line dynamics in the field of international trade.

Economic Research Journal

External Economic and Trade Shocks, Domestic Factor Mobility and China’s Economic Growth

FAN Haichao , DING Guanzu and ZHANG Lina

Summary: Smoothing out domestic circulation is a strategic choice for China to create new advantages for high-level opening-up and promote high-quality economic development. In the face of an increasingly complex and unstable external trade and economic environment, fully considering the domestic factor mobility has become especially crucial for comprehensively assessing the impact of external economic and trade on China’s economic growth. Against this backdrop, this paper quantitatively assesses the impact of China-US tariff fluctuations since 2018, widely viewed as the most significant bilateral trade dispute in the past 30 years, on China’s economic growth.

Theoretically, we construct a spatial general equilibrium model with multiple countries and sectors. The model incorporates input-output linkages, economies of scale, internal and international trade, and migration across regions and sectors to demonstrate how tariff fluctuations affect economic growth, with a special focus on the importance of internal market factor frictions in these effects. We calibrate the parameters using datasets including the World Input-Output Database (WIOD), Chinese census data, and Chinese provincial input-output tables.

Our analyses show that the imposition of additional tariffs would have a negative impact on China’s real GDP, with a magnitude ranging from −0.194% to −0.321%. However, this negative impact would be significantly underestimated without taking into account the input-output linkages and labor mobility across regions. These findings remain robust under a series of robustness tests, including different theoretical settings, alternative parameters and various methods for calculating the imposition of additional tariffs. Moreover, we distinguish the negative impact of external economic shocks on welfare and real GDP and point out that using the conclusion about the impact of the welfare level may lead to an incorrect estimation of the effects of external economic shocks on the Chinese economy.

We find that heterogeneity in the effects varies across regions and industries: some regions and industries benefit from the tariff fluctuations, while others suffer adverse consequences. Overall, regions or industries more engaged in downstream production, with greater dependence on trade with the United States, and with larger net labor outflows experience more significant negative impacts on their real GDP. In addition, counterfactual analyses show that among the policy mixes, reducing domestic trade barriers and speeding up technology progress are the two most effective countermeasures to resist negative external shocks and enhance economic growth.

This paper contributes to the recent literature on the linkage between foreign trade policy and domestic market frictions in developing countries (e.g., labor market frictions). Existing studies focus on the welfare effect of trade liberalization (Liu & Ma, 2023; Bai et al., 2023), while our study fills in this gap by centering on the effect of trade frictions. In particular, we find that overlooking labor mobility across regions would substantially underestimate the impact of the imposition of additional tariffs on China’s economic growth. Moreover, we evaluate how the effects of the imposition of additional tariffs transmit across different industries and regions, which further enriches the vast literature on the China-US trade friction.

This study has several important policy implications. First, to promote steady global economic growth, governments should strengthen communication and cooperation to peacefully resolve trade disputes. Second, because industrial policies should align with regional strategies, it is necessary to consider the unique characteristics of different regions when making policy decisions. Third, to ensure that high-level openness to the world can boost economic development, it is essential to leverage the large domestic market and ensure a smooth flow of resources between international and domestic markets. Fourth, to handle trade shocks and promote stable growth, it is crucial to drive industrial upgrades through technological innovation. Finally, a coordinated approach should be taken to implement various policies together, maximizing their effectiveness and mitigating negative impacts from external economic shocks to facilitate both domestic and international economic activities.

Keywords: External Economic and Trade Shocks; Domestic Factor Mobility; Integration of Domestic and Foreign Trade; Economic Growth

JEL Classification: F16, F43, F62

Journal of Management World

The Efficiency and Dynamic Change of China's Foreign Trade Pattern Transformation Empowered by Digital Firms: Based on the Dual Perspective of Intermediate Goods Cost and Demand Structure

Jiang Wei, Gong Sihao and Li Xitao

Summary: Since the late 1980s, China has actively engaged in the global value chains through processing trade, facilitating rapid expansion in foreign trade. However, confronted with the challenges of trade protectionism and the "deglobalization" trend, China's foreign trade is increasingly under pressure from both the supply side and the demand side. There is an urgent need to transit towards an ordinary trade pattern. The profound integration of digital technology with the real economy under the empowerment of digital firms can drive changes in supply-side efficiency and demand-side structure. This provides a new impetus for the transformation of foreign trade pattern and the achievement of high-quality development.

This paper incorporates the dual search and matching of intermediate goods and consumers into a theoretical model of trade organization decisions by heterogeneous firms, examining the theoretical mechanisms through which digital firms determine the transformation of foreign trade pattern from the perspective of intermediate goods cost and demand structure. Theoretical analysis indicates that empowerment of digital firms not only can reduce the relative cost of domestic and foreign intermediate goods from the supply side, but also enhance the effective market size of domestic demand relative to foreign markets from the demand side, collectively promoting a shift towards ordinary trade. In the empirical analysis, based on the China Industrial and Commercial Enterprise Database, this paper identifies digital firms in China to construct an index of digital proximity, and tests the theoretical predictions and mechanisms using micro-level firms data from the period 2000 to 2016. The study indicates that the increase in digital proximity drives both the share of local intermediate goods and local demand, significantly contributing to a sustained increase in the share of ordinary trade exports and advancing the transformation of China's foreign trade pattern. In addition, by employing a dynamic decomposition model to analyze the transformation of China's foreign trade pattern, this paper discovers that the empowerment of digital firms primarily enhances the proportion of ordinary trade exports through the intensive margins of "within-firm effects" and "between-firm effects", rather than through the extensive margins driven by entry and exit.

There are three main innovations in this paper. Firstly, the paper innovatively examines the determinants of foreign trade transformation through the empowerment of digital firms, offering a fresh perspective for recognizing the endogenous dynamics of China's foreign trade pattern transformation. Secondly, this paper employs a novel approach to identify digital firms and constructs a digital proximity index, thereby enriching and advancing the current methodologies for measuring the development of the digital economy. Finally, the paper extends beyond the absolute advantage focus of existing digital economy research to propose a comparative advantage perspective, where empowerment of digital firms diminishes the comparative advantage in processing trade's foreign intermediate goods acquisition and augments the comparative advantage in domestic market sales for ordinary trade. Furthermore, leveraging a dynamic decomposition model to analyze China's ordinary trade export share, the paper scrutinizes the adjustment mechanisms and realization pathways of digital firms-enabled foreign trade pattern transformation, considering both intensive and extensive margins. This analysis provides a new direction for understanding the micro-mechanisms of China's foreign trade pattern transformation.

Keywords: empowerment of digital firms; transformation of foreign trade pattern; intermediate goods cost; demand structure

JEL Classification: F12, D21, O14

The Comparative Advantage Analysis of Manufacturing Enterprises in China's Economic Dual Circulation: Based on the Perspective of Enterprise Heterogeneity

Zhu Kunfu, Wang Jiarong and Li Shantong

Summary: In the era of decelerating globalization, giving full play to the comparative advantages of heterogeneous enterprises in China and promoting the optimization and upgrading of the manufacturing supply chains is the key to accelerating the construction of a new development pattern and promoting the building of a new system of an open economy at a higher level. However, the traditional accounting framework based on value added trade neglects the relationship between domestic and foreign enterprises in global value chain (GVC) activities, showing obvious shortcomings.

This paper extends the GVC production decomposition framework to regions in China, adopts the perspective of firm heterogeneity, and quantitatively analyzes the dynamic evolution and internal driving factors of the revealed comparative advantage (RCA) index in inter-provincial, international and dual value chain production. The findings are as follows. (1) In the process of increasing provincial trade in China, the contributions of various heterogeneous enterprises are relatively stable, while in the process of slowing down international trade, there is a trend of decreasing foreign-invested enterprises (FIEs) and increasing domestic-invested enterprises (DIEs). (2) The comparative advantages of various heterogeneous manufacturing enterprises show obvious differences at the industry level, with FIEs having significant comparative advantages in high- R&D intensity industry, DIEs in medium- R&D intensity industry, and Hong Kong, Macao and Taiwan-invested enterprises (HMTs) in high-R&D intensity and medium-low R&D intensity industry. (3) At regional level, FIEs play a prominent leading role in promoting the comparative advantage of various value chains in the eastern and western regions, while HMTs play the most significant leading role in the central region. (4) The structural decomposition analysis shows that the improvement of China's manufacturing comparative advantage is mainly due to the expansion of inter-provincial trade and international trade scales, and the effect of industrial chain division efficiency is limited.

The marginal contributions of this paper are as follows. (1) Based on a more comprehensive and detailed production decomposition framework, the value-added RCA index is measured, which not only helps to "correct" the bias of the traditional value-added trade accounting framework, but also can "penetrate" the microscopic enterprise dimension for the comparative advantage research, which further enriches the scope of application and practical significance of related research. (2) This paper decomposes the change of value-added RCA index into two factors, total trade scale and the degree of industrial chain division. It conducts a cross-period comparison of the contributions of factors affecting the comparative advantages of various manufacturing enterprises with different R&D intensities, which provides a new perspective for explaining the change of comparative advantage in the dual circulation economic development.

Keywords: global value chain; domestic value chain; comparative advantage; heterogeneous enterprises

JEL Classification: F14, F23, O19

How Do International Demand Shocks Affect Firms' Capacity Utilization? Research Based on the Coordination Between Output and Capacity

Chen Aizhen , Zhao Dongyan and Liu Zhibiao

Summary: The weakening of global trade growth, and the dual efforts of developed countries in Europe and the United States on the supply and demand sides, have accelerated the restructuring of global industrial and supply chains. As a manufacturing and trading powerhouse with a complete industrial system, China faces dual threats to its industrial and supply chains. Unlike the more direct impact of input shocks, which has sparked widespread discussions, the negative external demand shocks on the output side, though seemingly subtle, actually affect a wider range of areas and have greater destructive power. How to coordinate output and capacity to enhance capacity utilization has become a key issue for the safety, stability, and high-quality development of China's industrial and supply chains.

Distinguished from supply shocks, demand shocks primarily cause output fluctuations rather than interruptions. Furthermore, the demand shifts caused by changes in the international competitive landscape lead to fluctuations in output and capacity simultaneously. Therefore, firms can achieve coordination between output and capacity through resource reallocation response mechanism. The ratio of output to capacity, or capacity utilization, is often used to reflect economic fluctuations. However, existing literature primarily exhibits three major shortcomings. First, unlike the considerable attention given to the positive international demand shocks, there is relatively little research on negative demand shocks. Such studies not only overlook the potential for firms to adjust capacity, but also fail to examine the mechanisms for coordinating output and capacity. Second, both theoretical analyses and empirical tests explaining the impact of differentiated quality decisions on exporting under external shocks, have neglected capacity constraints. Third, the literature on capacity utilization ignores the impact of competition and lacks comprehensive theoretical frameworks that integrate different channel mechanisms. Given that capacity utilization reflects the coordination between output and capacity, and demonstrates firms' ability to allocate and utilize resources, this paper incorporates international demand shocks and firm capacity utilization into a unified analytical framework, and empirically tests their correlations and mechanisms. The study finds that negative international demand shocks drive firms to enhance capacity utilization. The inter and intra- reallocation induced by threshold and quality upgrading effect, can promote the coordination between output and capacity. Industrial innovation, supply-demand balance, and competition significantly influence the effect of negative international demand shocks on firms' capacity utilization.

The primary contributions are as follows. First, it theoretically analyzes the development mechanisms for firms to coordinate output and capacity under international demand shocks, and explores practical paths to enhance capacity utilization to mitigate risks in industrial and supply chains. Second, the paper uses mathematical models to demonstrate the crucial role of resource reallocation during the process of adjusting thresholds and product quality in coordinating production and capacity under external shocks. Third, the paper constructs instrumental variables based on the geographical characteristics of specific market and the moving share method, providing reference for identifying and mitigating the endogeneity of external shocks. Besides, this article uses relatively new data from Chinese manufacturing listed companies to enhance the timeliness of the findings, and conducts interaction regressions and subgroup regressions based on different industry characteristics.

Keywords: international demand shocks; capacity utilization; coordination between output and capacity; resource reallocation

JEL Classification: D21, D24, F14

The Journal of World Economy

Impact of Global Production Automation on China’s Trade and Welfare

Ma Huan; Li Lei; Sheng Bin; Xu Gang

Abstract: This paper constructs a multi-sectoral Ricardian model that incorporates robot production and calculates a nationwide robot application index in order to quantify the impact of global industrial automation between 2012 and 2019 on China’s trade and welfare. The results of the study reveal the following: (i) China’s ability to empower production processes with robots needs to be further addressed, although China is already highly developed in industrial automation; (ii) global industrial automation has slightly increased the per capita welfare level of Chinese employees, but its contribution to productivity turns out to be minimal and the primary benefit comes from employment substitution effects; and (iii) the use of robots in developed countries has led to the reshoring of traditional industries, negatively affecting China. However, its use in emerging countries has further strengthened the industrial division and cooperation with China. This study provides important references for China to stabilize foreign trade and upgrade industrial automation.

Key words: robots, trading scale, trading structure, welfare level

JEL codes: F14, O33, L60

Intellectual Property Protection, Imitation Infringement and Corporate Service Trade

Ma Kewei; Sun Puyang; Yu Chunhai

Abstract: This paper discusses the impact of China’s trademark law reform on the trade volume of business services from a perspective of intellectual property rights protection. The protection of intellectual property rights in the service sector, with trademark protection as a fundamental form, can effectively reduce the likelihood of being imitated and change the investment decisions of enterprises. Based on this, this paper employs the Trademark Law Amendment implemented in China in 2013, using the characteristics of China’s tax system to calculate the trade volume of business services, identifying the tradable services industry based on the degree of geographical distribution dispersion and constructing a differential model to check the impact of intellectual property rights protection on the trade volume of corporate services. The results indicate that after the Trademark Law Reform, the trade volume of enterprises in the tradable service industry with service trademarks increased by 18.4%, and they also remain robust after using instrumental variables and other methods. On the other hand, the mechanism test results suggest that intellectual property rights protection encourages enterprises to increase R&D investment and spending on human capital training by reducing the likelihood of imitation of services, thus achieving a higher volume of trade in services. In conclusion, this paper examines for the first time the contribution of intellectual property rights protection to the growth of China’s trade in services from the perspective of trademark law.

Key words: intellectual property protection, trademark law reform, service trade volume, imitation infringement

JEL codes: L88, O14, O34