Research On The Impact Of Sino-US Trade Friction On RMB Exchange Rate

At the Boao Forum in 2019,Zhou Xiaochuan,former governor of the People's Bank of China,mentioned that the current Sino-US trade friction is not only a trade issue,but also related to macroeconomic development.In recent years,with the rapid rise of China's reform and opening-up dividends,the United States has been worried about its hegemonic status and promoted the escalation of trade frictions.As the trend of narrowing the gap of economic strength between China and the United States and the American factors in trade imbalance are difficult to change for a long time,trade frictions will become the norm in the future trade between China and the United States.In view of this,with the formation mechanism of RMB exchange rate becoming more and more market-oriented,the impact of pressure from the United States to use exchange rate as a tool of trade friction needs to be highly concerned.Therefore,the trend of RMB exchange rate under the background of trade frictions has gradually become the focus of scholars'research.Based on the theory of exchange rate determination and balance of payments adjustment,this paper combs the current domestic and foreign scholars'literature on the dynamic relationship between Sino-US trade frictions and RMB exchange rate,combines with the analysis of historical events of Sino-US trade frictions,and verifies that Sino-US trade frictions mainly pass through trade balance and exchange rate expectation at the empirical level.Channels have an impact on the RMB exchange rate.On the empirical method,this paper combines case study with empirical analysis,qualitative analysis and quantitative analysis.Firstly,the theoretical hypothesis that trade frictions will affect trade balance and exchange rate expectation is put forward by analyzing the trade frictions between Japan and the United States,and the correlation test is carried out by simple regression analysis.Then,the vector autoregressive model based on recursive variance decomposition is used to test the effect of trade balance and exchange rate expectation on RMB.The decisive role of exchange rate.The results show that before the outbreak of Sino-US trade frictions,Sino-US trade frictions mainly affected RMB exchange rate volatility through trade balance and exchange rate expectation;after that,the contribution of trade balance to exchange rate volatility can be neglected,and the short-term index of interest rate contributes more to exchange rate volatility.Thus,the Sino-US trade frictions are more likely to cause exchange rate fluctuations through market expectation channels.The funds that influence the exchange rate trend may mainly come from capital and financial items rather than current account.Therefore,in the future Sino-US trade negotiations,we should pay attention to the impact of interest rates on the Sino-US exchange rate.By combing the previous research results,this paper may have some innovations.First,this paper focuses on the impact of Sino-US trade friction on the future trend of RMB exchange rate under the current Trump Administration.Most of the existing research results are on one aspect of Sino-US trade relations,and the literature on the relationship between RMB exchange rate and Sino-US trade is only an analysis of the impact of RMB exchange rate on Sino-US trade.This paper expands and supplements the research direction of trade frictions affecting exchange rate trend,answers the specific question of how trade frictions affect exchange rate between China and the United States,and provides ideas for the reform and adjustment of RMB exchange rate system in the future.Secondly,this paper puts forward two channels through which trade friction acts on exchange rate,namely,trade channel and anticipated channel.Previous studies mainly analyze the economic logic of trade frictions initiated by a country based on the adjustment effect of exchange rate on balance of payments.This paper clearly expounds the specific ways of trade frictions impacting exchange rate,which is conducive to putting forward countermeasures and suggestions.Thirdly,this paper validates the two channels mentioned above through case study of trade friction between Japan and the United States and empirical test of vector autoregressive model based on recursive variance decomposition.At present,most of the research results on Sino-US trade frictions are only qualitative analysis,and there are few quantitative indicators of Sino-US trade frictions.This paper expands the relevant research methods of Sino-US trade frictions.On the basis of the research results,this paper expects that Sino-US trade friction will be a long-term state in the future Sino-US economic and trade exchanges,and the two sides will deepen cooperation in trade friction and consultation;RMB exchange rate will become more market-oriented and flexible to deal with the negative impact of external shocks after China has increased its tolerance of exchange rate fluctuations.In the future,China can alleviate exchange rate pressure by strengthening mutual trust dialogue,enhancing product innovation,expanding internal demand and promoting diversification of foreign trade.At the same time,China can give RMB more flexibility in exchange rate,stabilize exchange rate expectations,promote market-oriented reform of RMB and accelerate the process of internationalization of its currency.