The EU-China trade in goods in the years 2004–2020 – is the EU exploiting its comparative advantage?

Abstract

Purpose – The study aims to identify the EU’s and China’s comparative advantage in reciprocal trade and indicate the relations between the structure of this trade and such advantage. Research method – The study used Balassa’s Revealed Comparative Advantage index (RCA), which shows the competitive position in the exports of particular commodities compared to a selected partner. The calculations were based on 2004–2020 data, obtained from the UN Comtrade Database. Results – The results show that in the years under examination the EU-China bilateral trade followed a trend unfavourable for the EU (with an increasing negative balance). The most important commodities were machinery and equipment and they manifested a negative change for the EU. It meant that at the beginning of the analysed period (2004–2006) the EU had a comparative advantage in their exports, which was lost in 2007 and had not been regained by the end of the analysed years. Despite this change, machinery and equipment remained the dominant group of goods exported by the EU to China. Originality/value/implications/recommendations – The answer to the question posed in the title is that in bilateral trade China makes better use of its comparative advantage in exports, while the European Union has the imports structure that is more compatible with its comparative advantage. The EU countries shape the structure of their imports more effectively and, in the vast majority of cases, they purchase goods that they are not competitive with. On the other hand, they definitely underperform as suppliers to the Chinese market, selling goods (mainly machinery and equipment) in which they ceased to be competitive years ago.