Empirical Study On The Real Exchange Rate Impact On The US Trade Balance

Having been a member of WTO, China has profoundly improved its tradingstatus. The import and export volume of China has climbed from6207billion dollarsin2002to38668billion dollars in2012, with over20%annual compound growth.Since2006, China has been ranking3in terms of the international trade in the world,which implies the sharpening trading conflict between China and the United State.Confronted with the surging trade deficit, certain Western developed countries like theUnited State has tried every effort to intervene Chinese exchange rate policies. TheUnited States Senate once voted for a bill concerned about the regulatory reform ofcurrency and exchange rate in the worldwide, which finally passed on October11st,2011. This act aimed to push us China to accelerate its appreciation, which made theexchange rate of China a focused issue. Therefore, this paper will develop relativeresearch among the elements affecting Chinese exchange rates and the issue of tradedeficit, aiming to explore whether the depreciation of RMB would directly affect thetrade deficit between China and the United State in a remarkable way.The RMB exchange rate regime has gone through three major phases since theperiod of Chinese economic transition. This paper combined theory into practice onthe basis of analyzing foundational rate theory such as the Marshall-Lerner Condition,and the J curve effect and etc.The paper abstracted annual data from1981to2012, and industrial data from1992to2011, as well as the quarterly data from the first quarter in2006to the secondquarter in2013. Via certain empirical method like co-integration model, VAR&VECmodel, and impulse response, this paper concluded that the variation of RMBexchange rate wasn’t the crucial factor to the massive trade surplus between Chinaand the United State. The paper also put forward relative policies concerned aboutsuggestions to improve the trade surplus, analyzing the trade situation in a long run.