Since 2018, Chinese officials have been emphasising the need for China to achieve greater self-reliance. As discussed in de Soyres and Moore (2024), China has reduced its reliance on imported inputs, while simultaneously becoming more dependent on foreign demand to absorb its manufactured goods (Bown 2022, Freund et al. 2023). In this column, we look at the evolution of the sectoral composition of China’s exports and imports and investigate its similarity with the sectoral composition of the trade baskets of advanced economies.
First, we show that bilateral trade flows are significantly influenced by the complementarity between trading partners' export and import profiles – a metric we develop to complement existing measures that primarily focus on export similarity. Our findings demonstrate how sectoral analysis can reveal shifting trade patterns and competitive dynamics during periods of rapid industrial transformation.
We then document three key trends regarding the sectoral composition of Chinese international trade over the past decade. First, using existing measures of export similarity, we show that China has shifted towards producing and exporting in the same sophisticated product categories as advanced economies, particularly the euro area. Second, using our new index capturing the congruence between the sectoral specialisation of an exporter and sectoral dependencies of an importer, we highlight that China is importing fewer of the types of goods that European countries typically export, potentially limiting European exporters' ability to benefit from Chinese economic growth. Third, we reveal how China's export basket is becoming more aligned with the import patterns of advanced economies, which could potentially strengthen China's position to serve advanced economy markets.
Measuring trade basket similarity
To gauge the evolution of trade basket similarity, we rely on the Export Similarity Index (ESI), introduced by Finger and Kreinin (1979), which measures the degree of similarity between the export structures of two countries. The index ranges from 0 (completely dissimilar export profiles) to 100 (when export profiles are identical), capturing how closely the sectoral composition of exported goods between both countries coincides. Intuitively, it is a measure of the overlap between two countries’ export baskets.
Tracking the ESI’s evolution over time reveals important shifts in global trade patterns, indicating whether countries are becoming competitors or complementary partners in international markets. For instance, changes in the ESI between a developing country and advanced economies can reveal trends such as industrial upgrading or shifts in comparative advantage.
Introducing a new exporter-importer sectoral similarity index
To complement existing measures of export similarity, we develop the Partner Similarity Index (PSI), which quantifies how closely a country’s export basket aligns with another country’s import needs. A rising PSI indicates greater alignment between the goods a country exports (to all destinations) and those its trading partners import from all source countries. This metric helps capture the relationship between an exporter’s sectoral specialisation and an importer’s sectoral dependencies, offering deeper insight into the factors driving international trade.
To validate whether our PSI effectively captures potential trade relationships, we assess its predictive capability using a gravity model framework. Drawing on a sample of 32 advanced and emerging market countries, we demonstrate that higher PSI values significantly correlate with increased bilateral trade flows, even after accounting for traditional gravity model variables. This result validates PSI as a meaningful indicator of trade alignment, confirming that countries tend to import more from exporters whose sectoral specialisation closely matches their own sectoral import dependencies. Beyond validation, PSI importantly enriches standard gravity models by explicitly integrating a sectoral dimension, thus providing researchers with a complementary understanding of the factors influencing international trade patterns (the data are publicly accessible here).
Documenting China’s trajectory
Having established the association between bilateral trade flow and export-import similarity as measured by our PSI index, we now focus on documenting the evolution of both ESI and PSI indices between China and advanced economies.
We start by assessing the extent to which China’s development was associated with an increase in its export similarity with advanced economies. In Figure 1, we see that its export similarity with the euro area increased by 10% between 2010 and 2023, driven largely by growth in the automotive sector. Japan’s similarity with China also rose, though more modestly. Meanwhile, China’s similarity with US exports remained flat until 2022 before rising in 2023.
Figure 1 Evolution of Export Similarity Index between China and selected advanced economies
Note: Data are the 3-digit level.
Source: UN Comtrade.
Examining the PSI metric, we see in Figure 2 that the similarity between advanced economy exports and Chinese imports has declined over time, with notable differences across regions. The euro area, Japan, and the UK experienced the largest declines, mainly due to a growing mismatch in the machinery and transport equipment sector. As China became more self-reliant in the automotive industry, its imports of road vehicles (including parts and accessories) fell from 4.5% of total imports in 2013–2017 to just 2.7% in 2023.
The similarity between US exports and Chinese imports remained stable after 2010 due to opposing trends. A decline in China’s machinery and transport equipment imports reduced similarity, while a rise in energy commodity imports offset this effect, keeping the overall trend flat.
Figure 2 Evolution of Partner Similarity Index between advanced economies’ exports and China’s imports
Note: Data are the 3-digit level.
Source: UN Comtrade
Finally, the same exercise can be done by looking at the reverse trade flows. Figure 3 reveals a notable increase in similarity between sectors exported by China and sectors imported by all advanced economies. As seen on the right panel, the surge in sectoral similarity is again mostly accounted for by sector 7 (Machinery and Transport Equipment) as China gradually increased its export share in that sector while AEs maintained a high import share.
Figure 3 Evolution of Partner Similarity Index between China’s exports and advanced economies’ imports
Note: Data are the 3-digit level.
Source: UN Comtrade
Lessons for future research
These changes have far-reaching implications. As China’s exports become more similar to those of advanced economies, competition intensifies in third markets. Traditional exporters risk losing market share in industries where China is gaining strength, such as automotive and high-tech goods. This shift could exacerbate trade tensions and lead to protective measures by advanced economies seeking to safeguard domestic industries. Changes in trade profiles at the sectoral level could have important consequences for the evolution international spillovers of shocks and affects the balance between competition and cooperation in trade and technology, a topic we are exploring further in de Soyres et al. (2025).
China’s move up the value chain highlights the need to look beyond aggregate trade balances and examine sectoral shifts. The growing similarity between Chinese and advanced economy exports influences global economic spillovers, trade policies, and industrial strategies. Understanding these dynamics is crucial for anticipating future trade relationships and economic policies in an increasingly competitive global environment.
Authors’ note: The views expressed in this column are our own, and do not represent the views of the Board of Governors of the Federal Reserve, the Federal Reserve Bank of Saint Louis, nor any other person associated with the Federal Reserve System.
References
Bown, C (2022), “Four Years Into the Trade War, are the US and China Decoupling”, Working paper, Peterson Institute for International Economics.
Freund, C, A Mattoo, A Mulabdic and M Ruta (2023), “US-China decoupling: Rhetoric and reality”, VoxEU.org, 31 August.
de Soyres, F and D Moore (2024), “Assessing China’s Efforts to Increase Self-Reliance,” VoxEU.org, 4 January.
de Soyres, F, E Fisgin, J Garcia-Cabo Herrero, M Lott, C Machol, and K Richards (2024), “An investigation into the economic slowdown in the euro area,” FEDS Notes, 20 December.
de Soyres, F, E Fisgin, A Gaillard, A M Santacreu and H Young (2025), “From Partners to Rivals: The Global Trade Dynamic”, Working Paper.
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Wang, P-Z and X Liu (2015) “Comparative Analysis of Export Similarity Index between China and EU”, Proceedings of the 2015 International Conference on Management Science and Management Innovation.
