The Empirical Study Of RMB Exchange Rate And The Sino-U.S. Trade Balance Issue

Since the establishment of deplomatic relations between China and U.S., the bilateral trade enjoys a fast development while making a great contribution to the whole world. Nowadays, China has became the largest import market and the third largest export market of the U.S., and has replaced Mecico to be the second largest trade partner of U.S., only behind Canada. The bilateral trade volume boomed from less the 2.5 biliion U.S. dollars at the beginning of the establishment of deplomatic relations to 475 biliion U.S. dollars, mutiplied 194 times. At the same time, the U.S.-China trade deficit also increased causing the trade imbalance seriously intensified. According to U.S. official statistics, it began to appear deficit in the bilateral trade in 1983, and later in 2001, China emerged as the largest trade deficit partner of U.S. overtaking Japan. From 2005, U.S.'s trade deficit with China has accounted 36.4% of U.S.'s global deficit annualy. For example, in 2010, U.S.'s global trade deficit is 645.86 biliion U.S. dollars while the deficit with China reaches 291.08 biliion U.S. dollars accounting for 45.1% of the total, nearly the half.The huge trade deficit not only deepens Sino-U.S. trade friction, but also triggers a series of negative effects for the U.S.-China relationship.For this, the U.S. has several times declared that China has suspections of "currency manipulation" that is to artificially lower RMB to boost its exports, resulting in the increasing trade deficit of U.S. and improper trade surplus of China. In 2010 and Oct,2011, U.S. congress members, represented by Schumer, repeatedly appealed to the U.S. Department of Commerce and the Ministry of Finance, accusing China artificially manipulation of RMB, requiring to list China as "currency manipulation country" and urging the Obama government to be more tougher on the issue of exchange rate of China. RMB exchange rate issue has once again become the focus of debate, at the same time, conflict and game behavior on this issue between the two countries become more fiercely. All those friction not only damaged the relationship of the two sides, but also put RMB exchange rate into the cusp of world opinion. Therefore, how to treat and handle the RMB issue, as well as U.S. trade deficit with China, becomes the thorniest barrier. Reseaching the reason of U.S. trade deficit with China can help to understand the causes rationally and handle all those friction smoothly, which is of great meaning to both sides.The structure and main content of the paper is as follows:Chapter 1 is introduction of the reseaching background and purpose, method, significance, possible innovation and inadequation. Chaper 2 is literature review and theory introduction. Chapter 3 presents a detailed descriptive analysis of the international trade of both China and U.S. from the points of trade advantages, partner and trade products. Chapter 4 explores whether the Marshall -Lerner condition makes sense between China and U.S. from the traditional elasticity theory, and calculates the sum of the price elasticity of demand of import and export commodities to judge whether RMB appreciation could reduce the U.S. trade deficit with China. Taking into account the background and application of the theory of elasticity, Chapter 4 also uses cointegration test to further research the annual and monthly data from 1985-2010 through integrated and segmented way.Chapter 5 chooses some explanatory variables on bases of consumer function, foreign investment, international division of labor, technology blockade theory and other theories, such as statistical error, the internal structure of the U.S. economy, international direct investment (from the United States, Japan, Korea, ASEAN and Hong Kong, Macao, Taiwan Region), GDP and trade surplus of foreign-invested enterprises with United States, etc. to find the true drivers of U.S. trade deficit with China by means of stepwise regression method. Chapter 6 puts forward the researching conclusion and suggestions to reduse U.S. trade deficit with China.The main conclusion of this article is that there is no cointegration between the RMB exchange rate and the huge U.S. deficit with China. Therefore, RMB exchange rate is not the main driver of U.S. deficit and any preasures forcing RMB to appreciate is in vain for improving the trade unbalance between China and U.S. On the opposite, the appreciation of RMB could reduse the welfare of American people and company, and undermines China's export, employment and demestic demand.The true reasons for the unbalanced bilateral trade is the trade surplus of foreign-invested enterprises with United States inflated the deficit amount, the statistical error also exaggerate the ture figure and the international direct investment (from the United States, ASEAN and Hong Kong, Macao, Taiwan Region) increased the trade deficit indirectly. If exclude the statistical error and trade surplus of foreign-invested enterprises with United States, a true bilateral trade emerges, that is American is in a surplus position and China is of trade deficit.