Rmb Exchange Rate Fluctuations And The Balance Of Trade Relations Between China And The United States To Study

In recent years, the US-led Western world countries frequently put pressure on the China's government; attribute world trade imbalances to the RMB exchange rate and advocate "the appreciation of the RMB". Not only that, since last year, the two countries often clash on trade issues, both sides argued for their own, refused to give. This paper review and describe the history and current situation of RMB exchange rate and Sino-US trade balance, based on which to make both in theory and empirical research to explore the relationship between the RMB exchange rate and the Sino-U.S. trade balance, and finally propose policy recommendations and measures.This paper describes in detail the domestic and foreign scholars'empirical research on this issue in the past few decades. Then, the paper reviews the history of RMB exchange rate policy since 1949 and statistically describes China's trade balance under the guidance of different exchange rate policy. We can get a preliminary conclusion:RMB exchange rate changes have limited impact on trade balance and other factors besides the exchange rate influence the trade balance more apparently.Next, we will combine the elasticity analysis method and absorption analysis method, drawing on the theoretical model of McKinnon to discuss different effects of the exchange rate on the trade balance in a closed economy and open economy. In a closed economy, if the Marshall-Lerner condition holds, currency devaluation can indeed improve the trade balance; in an open economic environment in which the interest rate parity holds, currency depreciation will lead to the rise of the domestic price levels simultaneously. Then real interest rate decreases as the nominal interest rate keeps unchanged which has to be the same with the world interest rate, which will greatly promote the growth of domestic investment, and ultimately the increase of the value of domestic absorption surpasses the increase of national income. Currency devaluation does not necessarily improve a country's trade balance. Also in this chapter, we will take the East Asian countries that are mostly creditor country to U.S. as examples, focusing on reviewing the appreciation of the yen's impact on Japan's economy, through which we can find the current U.S. pressure on the RMB is so similar to what they did to Japan in those years. China must learn the lessons of Japan, because the RMB appreciation will not resolve the Sino-U.S. trade issues, but will hit the China's economy greatly.In the next chapter, we collect the data of the index of real effective exchange rate of RMB, China-US bilateral trade balance and real GDP index of both countries from Ql 1992 to Q4 2010 and make empirical study on the issue. The empirical results show that in the long term, the U.S. real income effects on bilateral trade balance is greater than the impact of real effective exchange rate of RMB. There is no causal relationship between real effective exchange rate and Sino-U.S. trade balance, which means, both in the long term and short term, RMB exchange rate is not the cause of Sino-U.S. trade imbalance. Slight J-curve effect shows in the short term, which further validates that the RMB exchange rate impact on Sino-U.S. trade balance is not so great.Then the paper discusses the other factors leading to the Sino-U.S. trade imbalance which are the United States excessive consumption and low savings rate, Sino-U.S. economic complementarities and the U.S. export restrictions on China, Sino-U.S. differences in trade statistics, China's export forms of processing trade and so on.Accordingly, the paper can be concluded:RMB exchange rate doesn't assume primary responsibility for the Sino-U.S. trade imbalance and the RMB appreciation will not ease the trade imbalance On the contrary, the United States should review its own policies for the key to solve the problem. Finally, the paper puts forward some recommendations for policy makers to refer to, including accelerating RMB exchange rate reform, rationalizing China's export product structure and importing more from certain countries.