Comparative Analysis of Terms of Trade: USA vs. China (2008-2018)

This report provides an analysis of the terms of trade between the USA and China from 2008 to 2018. It begins with a definition of terms of trade (TOT) and how it is measured, followed by an examination of the trends in both countries. The USA experienced an increase in TOT, with 2016 being an all-time high, while China's TOT stalled. The report identifies factors influencing these trends, such as technology advancements, taste changes, tariffs, and currency devaluation. It also discusses the effects of TOT on the welfare of both nations, including impacts on living standards, economic growth, and disposable income. The report concludes by referencing relevant literature on the topic.

TRENDS IN TERMS OF TRADE:
A perspective of USA and China

What is Terms of Trade?
• Terms of trade in an international economic concept that
is essential in determining the state of the economy of a
country through carrying out its business activities,
• These business activities can be summed up to a
county’s exports and.
• Therefore, Tot basically means the rate at which a
country’s exports exchange for its imports

How do we measure terms of trade?
• By dividing an index of export prices by an index
of import prices.
• If the terms of trade index goes up, we say that the
terms of trade have improvedRees 2017).
• If the index falls, we say that the terms of trade have
deteriorated

LIMITATIONS?
• Relative changes or export volumes between
countries it not effectively depicted by the terms of
trade calculations
• Its not effective t for TOT to be synonymously used
with pareto social economic or even social welfare

Importance?
• The gains from countries are affected
by the terms of trade
• living standards and balance of
payments are the various variables
affected by TOT

The terms of trade trend in the USA 2008-2018
• 2016 was an all-time high, indexed 100.8 and 2008
all time loww index of 91.8 within the 10-year period
• The terms of trade increased by 8.7 % and averaged
an index of 96.99 within the 10-year period
• the TOT is expected to grow to 106.3 in 2020(The
Global Economy,2019).
Figure1: Stalling trend illustration of the USA Terms of the
trade from 2013-2018 (Tradingeconomics,2019).

The terms of trade trend in China 2008-2018
• all-time high in 2009 index 91.1 and an all-time low in 2011
index79.05
• TOT stalled with a 0.97 % increase and averaged an index of
84.96 within the 10-year period
• This shows that the economy has been stalling and has been
suffering from the aftermath of the financial crisis coupled
with poor monetary policies.
• The future(2020) is uncertain with the on going trade war
with USA
Figure2: Stalling trend illustration of China’s Terms of the
trade from 2013-2018 (Tradingeconomics,2019).

factors affecting the trend in terms of
trade in the USA
• Technology advancements
• Changes in taste and preferences.
• Tariffs on imports

factors affecting the trend in terms of trade in
China
• Currency devaluation
• Technology advancements and
changes
• Economic growth

effects of the terms of trade on the welfare of the USA
and china
• Favorable TOT
• Improved standard of living
• Economic growth
• Job opportunities
• Increases in house disposable
income

effects of the terms of trade on the welfare of the
USA and china
• Unfavorable TOT
• poor standards of living
• Potential trade wars
• Economic growth stalls or drops
• drop in house disposable income

REFERENCES
• Kulish, M. and Rees, D.M., 2017. Unprecedented changes in the terms of trade. Journal of
International Economics, 108, pp.351-367.
• TheGlobalEconomy.com. (2019). USA Terms of trade - data, chart | [online] Available at:
https://www.theglobaleconomy.com/USA/Terms_of_trade
• TheGlobalEconomy.com. (2019). China Terms of trade - data, chart | [online] Available at:
https://www.theglobaleconomy.com/china/Terms_of_trade
• Tradingeconomics.com. (2019). China Terms of Trade | 2019 | Data | Chart | Calendar | Forecast |
News. [online] Available at: https://tradingeconomics.com/china/terms-of-trade
• Tradingeconomics.com. (2019). USA Terms of Trade | 2019 | Data | Chart | Calendar | Forecast |
News. [online] Available at: https://tradingeconomics.com/USA/terms-of-trade
• Schmitt‐Grohé, S. and Uribe, M., 2018. How Important are Terms‐Of‐Trade Shocks?. International
Economic Review, 59(1), pp.85-111.