The Influence Of The Appreciation Of RMB On The Unemployment Rate In The United States

With the high speed development of Chinese economy, the RMB exchange rate has became the hot issue between China and the United States in the last decade. United States government and domestic trade organizations accused China of manipulating currency, which resulted in the unbalanced Sino-US trade and the rising unemployment rate in U.S. They believed that RMB exchange rate should rise sharply. Represented by Krugman, some economists said that the RMB was still undervalued, and the appreciation of RMB could promote the economic recovery of the U.S. and reduce the unemployment rate. On September22,2011, the Currency Exchange Rate Oversight Reform Act of2011, which aimed at forcing China to increase the value of RMB, has been submitted to the senate, and been passed on October11.In fact, from2005to now, the exchange rate of the RMB against the U.S. dollar has risen to6.2225from8.2765, rises up to33%. Can the appreciation of the RMB really improve the employment market in the United States? Or will it have the opposite effect? Studying on this issue has certain practical significance, which can provide some recommendations for the policy of formulation in our country.This paper consists of six parts. The first part is prodromes, introducing the research background, research mentality, frame structure, characteristics and deficiency, etc.The second part is the literature review. The main point of American economists was that the RMB was seriously undervalued, and the undervaluation made China have an unfair trade advantage which led to America’s huge trade deficit with China, and at last, led to a huge loss of jobs. However, chinese scholars didn’t agree with this viewpoint. Someone said that only the domestic macroeconomic factors can significantly affect the unemployment rate in the United States. Some papers directly pointed out that the models which the U.S. institute has used have many flaws. Another class of studies suggested that the RMB exchange rate was not the reason of the Sino-US trade imbalance. And the last kind of article directly did research between the RMB exchange rate and the U.S. unemployment rate.The third part is the theoretical basis. First of all, the appreciation of the RMB is equal to the depreciation of the dollar. Under the traditional Keynesian theory, the depreciation will affect aggregate demand through foreign trade, consumption and investment, and then the change of aggregate demand will affect the employment. In general, the depreciation of the dollar will increase employment. Second, depreciation could also have a contractionary effect on employment. In the short run, the appreciation of the RMB may worsen America’s employment. Third, Okun’s law describes one experienced rule that the growth rate of real GDP rises per2%, the unemployment rate will fall by1%. The stable relationship shows that domestic macroeconomic is one of the main factors that affect the unemployment rate.The fourth part is the qualitative analysis. Firstly reviews the change of RMB exchange rate regime, and then observes the relationship between the REER of RMB and the unemployment rate of America, the chart suggests that there is not stable relevance. Next analyzes the RMB exchange rate and trade, finding out that Sino-US trade deficit continues to expand instead of improving the appreciation of the RMB. But after2005, the related trade data has become volatile; this shows that the appreciation of the RMB may have two opposite effects on Sino-US trade, as previously analyzed. Then, this paper has observed the U.S. unemployment rate and GDP growth rate, high negative correlation obviously exists between these two variables. So the author believes that the development of the domestic economy is crucial for employment. Finally, the article analyzes the American manufacturing data, suggesting that industry hollowing out is the fundamental cause of the decline in manufacturing employment in the United States. The loss of jobs caused by unbalanced industrial structure will not get back because of the appreciation of the RMB.The fifth part is the empirical analysis. This article selects five variables, including the RMB real effective exchange rate, the unemployment rate in the United States, the import and export of China to the United States, the United States industrial added value. Cointegration test shows that there is a long-term equilibrium relationship between these variables:the appreciation of the RMB has a certain effect to lower the unemployment rate in the United States. Impulse response analysis found a different effect, in the short term, the appreciation of the RMB will make the U.S. unemployment rate rise. The transmission mechanism is: the appreciation of the RMB will shrink Sino-US bilateral trade, the size of the drop of China’s imports is larger than the size of the drop of China’s exports, and imports decline will lead to unemployment rate rising, exports falling will make the U.S. unemployment rate decline, the power of rise is greater than the power of decline, as a result, led to deterioration of American job market in the short term. This is similar to the J curve effect. At the same time, we can also see that among the impacts of the four variables to the unemployment rate, the industrial added value is one of the biggest impacts, once again shows that the domestic economic development is the decisive factor affecting the level of employment in America.The last part is the conclusion and policy suggestion. The author proposed that China should emphasize that the RMB should have a gradual appreciation process. If the RMB rise sharply at once, it will not only be conducive to the stability of China, but also shrink Sino-US bilateral trade and rise American unemployment rate in the short term. China also should emphasize that promoting domestic economic development and change the status of industrial structure hollowing out are the basic ways to decline the high unemployment rate for the United States; Reducing the export restrictions to China, especially in high-tech products, is another effective way for U.S. to improve Sino-US trade deficit and promote American employment; At last, China should expand direct investment to America that can make a lot of contributions to increase tax revenue and employment in the United States, to achieve win-win situation.