These databases are important becau

These databases are important because they provide a more accurate and nuanced
understanding of trade flows that are often masked by the traditional trade data. For
instance, policy debates around the US–China bilateral trade imbalance often propose
policies to offset what are described as the artificially low renminbi–dollar exchange
rate, unfair subsidies and trading practices of the Chinese Government and the inability
to compete with exceptionally low Chinese wages. Policy prescriptions typically call
for the Chinese to substantially appreciate the renminbi or for the US to place a tariff
on imports from China to offset the perceived undervaluation. The value-added trade
databases illustrate clearly at a more macro level the iPhone story. The WTO/OECD
value-added estimates of the US-China merchandise trade balance for 2010 is
US$ 131 billion, compared to the traditional trade data’s balance of US$ 176 billion, while
US deficits with Japan, the Republic of Korea and other Asian countries grow.5 Koopman
et al., (2010) show that Chinese value-added by sector varies widely, with electronic
products and many other products produced in Chinese export processing zones
containing relatively low levels of Chinese value-added, while products such as steel,
textiles and clothing contain relatively high levels of Chinese value-added. Thus policy
responses to concerns over gross trade imbalances are likely to have unexpected
and unintended consequences that are specific to the policy response. A unilateral
appreciation of the renminbi will have a bigger impact on the importing country prices
of goods produced by Chinese sectors containing substantial Chinese value-added,
such as steel and textiles. However, unilateral renminbi appreciation is likely to have
smaller impacts on the importing country prices for those products exported from
China using substantial amounts of imported components, such as those produced in
export processing zones, for example electronic goods.6 These effects suggest that