A Weak Dollar Adjustment To The Influence Of The Structure Of Bilateral Trade

The Sino-U.S. bilateral exchange rate and trade imbalance has always been focused. Since there are already lots of papers examining the effects of currency currency fluctuations on trade flows, few studies reveal the relationship between exchange rate movements and bilateral trade structure. This paper investigates this problem deeply and comprehensively by comparative analysis and empirical analysis through two perspectives:trade commodity compositon and trade patterns using both aggregate and disaggregate data.First, this paper examines the impact of real exchange rate movements on bilateral trade commodity composition by Johansen cointergration test and VECM method using the quarterly data from1995Q1to2011Q4. The results suggested that the weak dollar against RMB would effectively decrease imports of primary and mid-tech goods from China, and also raise exports of primary goods in both short and long term. However, the weak dollar can not improve the export of high-tech manufacturing goods, but would even stimulate the imports from China to increase in the long run.Second, this paper examines the impact of real exchange rate movements on various trade patterns by Johansen cointergration test and VECM method using the monthly data from2001M1to2008M12. The results told that the weak dollar would decrease Chinese export to U.S. for both general trade and processing trade pattern, but the degree of negative impacts is diversity to different trade pattern:The adverse effect is more significant for proceesing trade than for general trade and the processing and assembling trade pattern would be suppressed most serious.Third, the paper use disaggregated data between U.S. and China at HS4commodity level and conduct ARDL-ECM model to find that:(1) The weak dollar against RMB would effectively reduce imports from China for most trade goods (32/50) which are mainly labor-intensive mid-tech goods in the long run with significant time lag. But most high-tech goods follow a "U" path with the import amount decreasing in short-term and increasing in long-term.(2) The weak dollar could hardly improve U.S. exports to China either. While it only works for primary goods and small parts of mid-and high-tech goods, most high-tech goods follow an "inverted U" path with the export amount increasing in short-term and decreasing in long-term. Finally, the paper summarized all research conclusions and made suggestions on future policies. From the perspective of trade commodity composition, we should utilize the benefits of weak dollar on stimulating Chinese high-tech export industry, reduce the protection to primary and mid-tech export industries and guiding them to resist RMB appreciation risk through improve technical level. From the perspective of trade patterns, we should eliminate the obstacles to general trade and promote the processing trade shift from low-end and labor-intensive production to deep processing and tech-intensive production. As for the Sino-U.S. trade imblance, we suggest that the exchange rate adjustment is not a proporiate solution but could even be destructive for the healthy development of bilateral trade structure.