Bilateral trade and productivity: analysis for trading partners of China and the United States

Purpose This study investigates the extent to which bilateral trade with China and the United States (US) influences the productivity of trading partners. Design/methodology/approach This study uses panel data estimates to identify the export and import policy channels separately and then their combination with trade integration and trade balance at both the country and sectoral levels between 99 countries and China and the US, incorporating institutional quality and geopolitical risks. The sample period covers the years 2002–2019, and the two-step generalized method of moments (GMM) is employed as the main estimation method. Findings Trade with China boosts total productivity at constant prices through exports and imports, especially in manufacturing, but reduces welfare-relevant total factor productivity through total trade and trade balance, particularly in agriculture. In contrast, trade with the US consistently enhances all productivity across all channels, except for agricultural imports, which lower welfare-relevant total factor productivity. Institutional quality amplifies the positive effects, while trade uncertainty and US–China tensions reduce them. Originality/value This study provides a comparative, channel-specific and sector-sensitive analysis of trade-productivity links with China and the US, offering timely insights for policymakers involved in navigating shifting global trade dynamics.