The trade balance of a country is defined as the difference between its exports and its imports. When exports are greater than imports, for example, a country runs a trade surplus, which has been the case for China at least for the past 16 years. Thanks to FRED, we can analyze each of the components separately: exports, imports, and the overall trade balance (all as a percentage of GDP).

The graph shows four interesting episodes, marked by the vertical lines.

1. In 2001, China became a member of the World Trade Organization (WTO) and saw a big increase in both its exports and its imports. Trade remained roughly balanced, however, since the increases of both components were similar.
2. From 2004 to 2007, China started to build large trade surpluses (from 1.7 percent of GDP in 2004 to 7.5 percent in 2007) mainly driven by an increase in its exports that wasn’t matched by an increase in imports. There are two reasons: Exports in manufacturing increased rapidly, especially machinery, electronic appliances, and transportation equipment. Imports of intermediate goods slowed down, since China began to produce them domestically. (More about this.).
3. In 2007, the trade surplus started to decline when China’s exports decreased more than its imports. Global demand also went down as a result of the financial crisis that started in the United States and spilled over to the developed countries.
4. Since 2011, China’s trade surplus has increased. Even though exports are still falling (due to weak global demand), for the past few years imports have decreased, mainly due to lower domestic demand and commodity prices (More about this.)

How this graph was created: Select the first two series listed here for Chinese exports and imports and select “Add to Graph.” For each of the series, choose “Modify Existing Series” to add the third series (GDP) and insert in the formula tab “a/b*100” to calculate exports and imports as a percentage of GDP. For the trade balance (exports minus imports), add the three series listed (exports, imports, and GDP) and modify by using the formula “(a-b)/c*100” to calculate the trade balance as a percent of GDP. To add the vertical lines to denote time periods, click “Add data series” and then “Add trend line.” Set the start date and end date to be the same, set the start value as 0 and the end value as where you want the line to end. For the y-axis positions, choose the right side for exports and imports and the left side for the trade balance.

Suggested by Ana Maria Santacreu and Usa Kerdnunvong.