The Impact Of RMB Real Exchange Rate's Fluctuation On The Sino-US Trade Balance: An Empirical Analysis

Since the reform and opening up, China-US economic and trade relations has undergone substantial development. To entered the twenty-first century, especially since China's accession to the WTO, the trade balance between China and the United States continually rising. However, since the beginning of 1990s, Sino-US trade surplus continues to expand, Sino-US trade balance has become more and more uneven, Western countries attributed this result to China's exchange rate policy, considered the value of the RMB is undervalued and the RMB should be revalued in order to reverse the United States trade deficit to China. So, is the RMB exchange rate policy the main cause of the Sino-US trade imbalance? Should RMB be appreciated? In this paper, firstly, I adopted those quarterly data counted separately by the Chinese government and the US-government. Secondly, I established VAR models and conducted co-integration test. Thirdly, I applied Error Correction Model and Variance Decomposition and other methods of empirical analysis. Finally, I found that the appreciation of RMB is not able to reverse the status quo of unbalanced Sino-US trade, the main impact of the Sino-US trade balance between China and the United States are the domestic demand of U.S. and China. In this paper, I attributed the situation to many factors in real-life which will influence the trade balance between China and the United States, in some period, the role of these factors has a much more impact than that of fluctuation of exchange rate.This article mainly consists of five parts. The first part is the preface, including the background and significance of topics, research methods, article structure. The second part is the literature review, including Theory and Empirical Review. The third part is to summarized and concluded the fluctuation of RMB against the U.S. dollar exchange rate and the history of Sino-US trade Since the reform and opening up. An Empirical Analysis of Part IV is part of the core of this article. According to the empirical analysis , This part analyzed the main reasons influenced the trade balance between China and the United States and The extent of the impact of the real exchange rate of RMB against the U.S. dollar on the Sino-US trade balance. The Part V are the reasons for analysis and policy recommendations.