On The Current Account Imbalances Of The United States And China

In the past decade, the large deficit current account in the U.S. and the huge surplus current account in China have been a main feature in the world economy. This situation has generated concern among analysts and policy makers.Based on this background and the data of China and the United States current account from2000to2009, this paper collected and analyzed the factors that caused this economic imbalance in detail, in order to explain how the various factors affect current account and the proportion of their impact; analyzed the basic state of the U.S. current account and Chinese current account and estimated the deficits and surpluses generated by this problem will disappear eventually in the case of the normal development of the global economy; illustrated logic relationships among net export, savings and the current account; within the intertemporal model, which factors causing the current account imbalances in these two nations would be found and how savings and investment changes affect current accounts in the U.S., in China and in the rest of the world. Although explaining the current account change well, this model has some shortcomings, as it ignores some elements. These disadvantages would have impacts on its power to explain the real economic situation; to avoid the intertemporal model’s demerits, the Specie-flow mechanism and the Mundell-Fleming-Tobin model would be applied in the section5, which are much closer to the reality, based on the IS curve it established the current account function in order to analyze the impact of the exogenous variables and endogenous variables in short-term, and from this function combined with some graphs current accounts’change would be analyzed just under the market power and under effects of nominal exchange rate changes in the U.S. and in China, respectively.13Charts,20Tables,60References.