The Effects Of Exchange Rate Changes And Other Determinants On The Trade Balance

Exchange rate is the exchange rate between the two currency, it is also the mostimportant international economic activity price indicator of a country. The change ofexchange rate has a profound impact on a country’s trade balance of payments anddomestic economic fluctuations. In the21st century, China’s trade balance hascontinued surplus, huge trade surplus makes the exchange rate of RMB has beenunder appreciation from the international and domestic pressure.About the relationship between exchange rate and trade balance discussion,many scholars linked China’s appreciation with Japan’s. This paper attempts tocompare the impact of the exchange rates and other factors on the impact of thecountry’s trade balance, according to the analysis, this paper attempts to analyzeexplain the underlying causes of China’s trade surplus, and to propose China’sexchange rate reform and balanced development of trade policy advice for future.After the analysis we find that:(1) For China and Japan, the effect of theexchange rate on adjusting the trade balance is limited, however, for the extent of theimpact point of view, Japan is greater than China, which indicated that the RMBmarket level of China is not high;(2) For China and Japan, the saving-investment gapwill have a significant impact on the country’s trade balance, but for China, the impactis greater, which indicated that the presence of the high savings rate problems inChina;(3) For China and Japan, the foreign market environment affects significantlytrade balance, but in terms of the different conditions of China and Japan, there aredifferent way to influence trade balance;(4) in addition to these, for Japan, accordingto the analysis of domestic revenue, given the resources dependent, Japan’s domesticrevenue could significantly promote Japan’s trade surplus.Based on the above analysis of this paper, we argues that (1) China shouldactively participate in the reform of the current international monetary system, deepenthe reform of RMB exchange rate regime;(2) China should take measures to reducethe savings rate, expanding domestic consumption, promote economic restructuring,reducing trade surplus;(3) China should be transformed into an export-oriented economic growth, and actively carry out industrial upgrading.