	Introduction

The U.S. merchandise trade deficit with the People's Republic of China (China) remains a major source of bilateral tension. In March 2018, the Trump Administration reportedly asked China to develop a plan to reduce the bilateral trade deficit by $100 billion. The Fair Trade with China Enforcement Act ( H.R. 704 and S. 2 ), for example, refers to "a severely imbalanced trading relationship" with China, and would impose restrictions on Chinese investment in the United States "due to its negative effect on the United States trade deficit and wages of workers in the United States." The United States Reciprocal Trade Act ( H.R. Comparison of U.S. and Chinese Merchandise Trade Data

 Table 1 lists the official trade statistics from the United States and China for the years 2001 to 2018, using official trade data. The top five HS chapters—footwear (64), machinery (84), electrical machinery (85), optical and medical instruments (90), and toys and sporting goods (95)—account for more than 94% of the difference between the U.S. and Chinese figures for U.S. imports from China (or Chinese exports to the United States). According to most studies, this is a comparatively minor source of difference in the trade figures. Non-Technical Explanations

			Value Differences in Direct Trade

According to two joint China-U.S. studies (see " Joint China-U.S. Studies of Discrepancies " below), about half of the merchandise trade discrepancy between U.S. imports from China and Chinese exports to the United States—or eastbound trade—is attributable to changes in the values of the export price in China and the import value in the United States for goods shipped directly between the two countries. Second, the value of the shipment may change—with or without any actual change in the goods—between its arrival in and departure from the third location. The initial focus of the working group was to examine the "unusually large and growing statistical discrepancies in the bilateral merchandise trade data officially published by [the] two countries." However, the Working Group stated that the results of the study were not intended to imply errors in either nation's statistical systems and/or methods of calculating official merchandise trade data. Under the auspices of the U.S.-China Joint Commission on Commerce and Trade (JCCT), China's Ministry of Commerce and the U.S. Department of Commerce and Office of the U.S. Trade Representative (USTR) have conducted two studies to determine the causes of the statistical discrepancies in the official merchandise trade data reported by both nations. The first report was released in October 2009; the second in December 2012. According to official U.S. trade figures, the bilateral trade deficit with China in 2017 was more than five times the size of the next largest bilateral trade deficit (Mexico, $71.1 billion) and greater than the sum of the next eight largest bilateral trade deficits.
The size of the U.S. bilateral trade deficit with China has been and continues to be an important issue in bilateral trade relations. President Trump and some Members of Congress view the deficit as a sign of unfair economic policies in China. The Trump Administration has reportedly asked China to develop a plan to reduce the bilateral trade deficit by $100 billion. In the 116th Congress, the Fair Trade with China Enforcement Act (H.R. 704 and S. 2) and the United States Reciprocal Trade Act (H.R. 764) mention U.S. trade deficits as a reason for the proposed legislation.
There is a large and growing difference between the official trade statistics released by the United States and the People's Republic of China. According to the United States, the 2018 bilateral merchandise trade deficit with China was $419.2 billion. According to China, its trade surplus with the United States was $323.3 billion—a $95.9 billion difference.
This report examines the differences in the trade data from the two nations in two ways. First, it compares the trade figures using the Harmonized Commodity Description and Coding System (Harmonized System) to discern any patterns in the discrepancies between the U.S. and Chinese data. This comparison reveals that more than 94% of the difference in the value of China's exports to the United States in 2018 was attributable to five types of goods. Those five types of goods, in order of the size of the discrepancy, were electrical machinery, machinery, toys and sporting goods, optical and medical equipment, and footwear.
The second approach to examining the differing trade data involves a review of the existing literature on the technical and non-technical sources of the trade data discrepancies. The literature reveals that the leading sources of the discrepancies are differences in the list value of shipments when they leave China and when they enter the United States, and differing attributions of origin and destination of Chinese exports that are transshipped through a third location (such as Hong Kong) before arriving in the United States.
In light of the differences in the official bilateral merchandise trade data, the U.S.-China Joint Commission on Commerce and Trade (JCCT) established a statistical working group in 2004. The working group has released two reconciliation studies (in 2009 and 2012) to identify the causes of the statistical discrepancies. The Working Group stated that the adjustments contained in the two studies are not meant to imply errors in the official statistics of either country.
This report is updated annually, after the release of official trade data by China and the United States.