A Theoretical Analysis Of Underlying Causes Of The Sino-US Trade Imbalance

As economic globalization deepens, global economic imbalances have become quite normal nowadays, especially between the world’s two largest economies—the U.S. and China. China maintained a trade surplus with the United States for many years, and the amount is expanding each year, which has aroused strong resentment from the United States. The U.S. claimes the RMB exchange rate is to be blamed, and demand the exchange rate to be more market-oriented, in order to pressure the RMB to appreciate. In this paper, on the basis of theories of international trade, exchange rates and trade imbalances, the author will first review the history of the development of Sino-US trade relations and the status quo of Sino-US trade imbalances, and reach the conclusion, through empirical analysis such as ADF test and Johansen Cointegration test, that the real exchange rate fluctuations of RMB do have impact on the changes in the amount of revenue and expenditure of Sino-US trade, but the RMB exchange rate only has limited impact on Sino-US trade balance. Finally, the paper uses ADF test method, Johansen cointegration test and least squares regression method to analyze the differences in savings rate, unit labor cost between the two countries, and demonstrate the root cause of the Sino-US economic imbalances. Also, various factors leading to Sino-US trade imbalance will also be discussed, considering the current RMB exchange rate changes, trade policies and industrial transfer between the two countries under the background of economic globalization. Finally, this paper will give policy proposals in view of the fact that Sino-US trade friction is deepening and the RMB is under tremendous pressure to appreciate. This paper mainly includes the following aspects:(1)The paper reviews the development of Sino-US economic and trade development, and analyses the current situation of Sino-US trade imbalance, including the analysis of development of Sino-US trade relations and trade dependence, and the analysis of the current situation of Sino-US trade imbalance from aspects of quantum and commodity structure.(2)The paper also reviews and compares the change trends of the imbalance of Sino-US trade and the RMB exchange rate. After giving an general description, the paper makes an correlation analysis of the two change trends based on the data from three time periods:1981to1994,1995to2004and2005to2012. With the historical experience of Plaza Accord, the paper conclude that RMB exchange rate is not the main reason causing the imbalance of Sino-US trade. (3)Using the ADF test and Johansen Cointegration test, this paper makes an empirical analysis based on the historical data of Sino-US trade balance and RMB exchange rate from1981to2012, and reached a conclusion that the real exchange rate of RMB does have an impact on Sino-US trade balance and a country’s currency devaluation can indeed improve the trade balance, but the impact is quite limited.(4)The paper points out that the fundamental reason causing the imbalance of Sino-US trade is the imbalance between the two counties’ economic development, and the paper uses ADF test method, Johansen cointegration test and least squares regression method to analyze the differences in savings rate, unit labor cost between the two countries, and finds out that there is a positive correlation between the scale of differences in savings rate and unit labor cost, direct investment in China, and the amount of Sino-US trade surplus. Besides the above mentioned reasons, the paper also takes other factors into consideration, such as America’s export control against China, industrial transfer brought by economic globalization and foreign investments in China.(5)Based on the analysis above, the paper gives policy recommendations as follows: safeguard workers’ legitimate rights and interests; encourage domestic consumption and lower saving rates; improve China’s role in international intra-product specialization; encourage Chinese enterprises to make outward foreign direct investments; and improve the RMB exchange rate regime to get more flexibility.