What were the affects of trade in China? How have the affects of trade affected China?

Answer 1

That China's role in world trade has changed from insignificance to relevance is well known. Starting from an almost completely closed economy in 1978, with trade representing just less than 1 percent of global trade, Chinese total trade in goods exceeded 6 percent of the world total in 2004 (figure 1). This share leaves Chinese trade behind only the United States and Germany in total trade value. Indeed, figure 1 shows that China doubled her share in world trade since 1993, a doubling that neither Japan nor any emerging-market economies have accomplished over such a short horizon. Given the growing importance of China in the global economy and the fact that the Chinese authorities have permitted the exchange rate to appreciate gradually since July 2005, the question of how Chinese trade responds to movements in the Chinese exchange rate is gaining attention.2

Addressing this question requires information on the effects of price changes on China's trade, but such information is not available. Indeed, it is easier to find estimates of price effects for some of the smaller industrialized countries than it is for China. There are three reasons for the lack of work on estimating price effects for Chinese trade. First, the state controlled much of the economy 25 years ago and so information on trade elasticities was not relevant; section 2 reviews the main changes in trade policies since 1978. Second, the stability of the real effective exchange rate makes it difficult to identify the effects of exchange rates on trade. Third, data on Chinese trade prices are not available. To be sure, the literature offers estimated price effects but they are based on proxies for the unobservable Chinese price data which, as section 3 reviews, are of questionable usefulness.