Effects of exchange rate and income on the US bilateral trade with China under Chinese managed floating exchange rate system
| DOI | https://doi.org/10.1108/JCEFTS-04-2018-0009 |
| Date | 01 October 2018 |
| Published date | 01 October 2018 |
| Pages | 236-246 |
| Author | Yongqing Wang |
| Subject Matter | Economics,International economics |
Effects of exchange rate and
income on the US bilateral trade
with China under Chinese managed
floating exchange rate system
Yongqing Wang
College of General Studies, University of Wisconsin-Milwaukee,
Waukesha, Wisconsin, USA
Abstract
Purpose –China’s exchange rate system remains a public concern. This paper aims to investigate the
effects of the appreciationof the US dollar (or depreciation of Chinese Yuan) under China’s“managedfloating
exchange rate system”on the US bilateral trade deficit with China, the US exports to China and the US
importsfrom China.
Design/methodology/approach –The author uses quarterly data from 2005Q3to 2017Q3 and applies
autoregressivedistributed lags model to carry out the empirical analysis.
Findings –The results suggest that both the US and Chinese income are important determinants of the
US bilateral trade deficit with China, the US exports to China and the US imports from China. Further,
the appreciation of the US dollar with respect to Chinese currency may discourage the US exports to
China, but will not considerably promote the US imports from China in the long run. Finally, the
appreciation of the US dollar does not contribute significantly to the US trade deficit with China in the
long run.
Originality/value –Policymakers may want to pay attention to the resultsof currency depreciation on
bilateral trade flows and trade balance in both the short and the long run. The results are different.
Policymakers may alsowant to keep the following in mind: both the US andChinese income are vital factors
of bilateraltrade balance, exports and imports.
Keywords ARDL model, Exchange rate, US bilateral trade balance with China,
US exports to China, US imports from China
Paper type Research paper
1. Introduction
The USA has run trade deficit for more than 40 years and the amount of trade deficit has
increased dramatically. According to the US Census Bureau, 40 years ago, the USA’s total
trade deficit was only $27.2bn in 1977. Now, the US trade deficit of goods was $810.0bn,
while trade balance of services was $244.0bn in 2017. As a result, the USA’s total trade
deficit was $566.0bn in 2017, which is more than twenty times higher than what it was in
1977. The USA bilateral trade deficit withChina has risen even more rapidly than USA total
trade deficit, especially after 1990s. The USA’s bilateral trade deficit with China was only
about $10bn in 1990, while it was $375.2bnin 2017, which is about 66 per cent of the US total
trade deficit in 2017. Consequently, this leads to some uneasiness between the USA and
China, including the most recent trade war between the USA and China that caught
everyone’s attention.
Besides the large amount trade deficit, there are some tradeissues adding to the tension
between the USA and China. One of the issues is China’s exchange rate system. A floating
JCEFTS
11,3
236
Journalof Chinese Economic and
ForeignTrade Studies
Vol.11 No. 3, 2018
pp. 236-246
© Emerald Publishing Limited
1754-4408
DOI 10.1108/JCEFTS-04-2018-0009
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