IDEAS home Printed from https://ideas.repec.org/a/taf/rjapxx/v17y2012i1p171-187.html

Will RMB appreciation reduce trade deficit in the US?

Author

Listed:
  • James Zhang

Abstract

Although the Renminbi (RMB) appreciated by more than 25% against the US dollar in nominal terms between 2005 and 2011, China's exports continued to grow, leading to a surplus, representing approximately for 10% of its GDP. This paper assesses the major explanations for the surge of China's exports and trade surplus and tackles the issue of whether an appreciation of the RMB would help the US to reduce its trade deficits. After conducting simulation exercises on the multi-country macro-econometric Fair model, this paper offers some new explanations for the unexpected surge in China's trade surplus, namely a low overall price elasticity and a high domestic income elasticity for the tradable goods in both countries, and a consequential sluggish price pass-through process of the RMB appreciation on the US market. It thus questions the effectiveness of RMB appreciation as an instrument to restore the trade balance between China and the US.

Suggested Citation

  • James Zhang, 2012. "Will RMB appreciation reduce trade deficit in the US?," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 17(1), pages 171-187.
    • Handle: RePEc:taf:rjapxx:v:17:y:2012:i:1:p:171-187
    DOI: 10.1080/13547860.2012.640021
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/13547860.2012.640021
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/13547860.2012.640021?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. N/A, 2007. "The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 200(1), pages 7-30, April.
    2. Robert Koopman & Zhi Wang & Shang-Jin Wei, 2008. "How Much of Chinese Exports is Really Made In China? Assessing Domestic Value-Added When Processing Trade is Pervasive," NBER Working Papers 14109, National Bureau of Economic Research, Inc.
    3. Morris Goldstein & Nicholas R. Lardy (ed.), 2008. "Debating China's Exchange Rate Policy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 4150, October.
    4. N/A, 2007. "The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 199(1), pages 8-33, January.
    5. N/A, 2007. "The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 201(1), pages 8-14, July.
    6. N/A, 2007. "The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 202(1), pages 9-33, October.
    7. Morris Goldstein & Nicholas R. Lardy, 2009. "The Future of China's Exchange Rate Policy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number pa87, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sabrine Ferjani & Sami Saafi & Ridha Nouira & Christophe Rault, 2022. "The Impacts of the Dollar-Renminbi Exchange Rate Misalignment on the China-United States Commodity Trade: An Asymmetric Analysis," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 20(3), pages 507-554, September.
    2. Thanh, Su Dinh & Canh, Nguyen Phuc & Doytch, Nadia, 2020. "Asymmetric effects of U.S. monetary policy on the U.S. bilateral trade deficit with China: A Markov switching ARDL model approach," The Journal of Economic Asymmetries, Elsevier, vol. 22(C).
    3. repec:osf:osfxxx:cwvqb_v1 is not listed on IDEAS
    4. ABBAS, Shah & Nguyen, V.C. & YANFU, Zhu & Nguyen, Huu Tinh, 2020. "The Impact of China Exchange Rate Policy on its Trading Partners Evidence Based on the GVAR Model," OSF Preprints cwvqb, Center for Open Science.
    5. Chi, Junwook, 2016. "Exchange rate and transport cost sensitivities of bilateral freight flows between the US and China," Transportation Research Part A: Policy and Practice, Elsevier, vol. 89(C), pages 1-13.
    6. Hurley, Dene T. & Papanikolaou, Nikolaos, 2021. "Autoregressive Distributed Lag (ARDL) analysis of U.S.-China commodity trade dynamics," The Quarterly Review of Economics and Finance, Elsevier, vol. 81(C), pages 454-467.
    7. Dene T. Hurley & Nikolaos Papanikolaou, 2018. "An Investigation of China‐U.S. Bilateral Trade and Exchange Rate Changes Using the Autoregressive Distributed Lag Model," Economic Papers, The Economic Society of Australia, vol. 37(2), pages 162-179, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kıvılcım Özge KARA, 2019. "Discussions on the Chance of Success and Efficiency of Fiscal Decentralisation," Sosyoekonomi Journal, Sosyoekonomi Society, issue 27(40).
    2. repec:ocp:dbbook:9-789954-971727 is not listed on IDEAS
    3. Thomas D. Willett & Orawan Permpoon & Lalana Srisorn, 2010. "Asian Monetary Cooperation: Perspectives From The Optimum Currency Area Analysis," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 55(01), pages 103-124.
    4. Angel Calderon-Madrid & Alexandru Voicu, 2011. "The NAFTA tide: Lifting the larger and better boats," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 20(4), pages 467-505.
    5. Mariam Camarero & Estrella Gómez-Herrera & Cecilio Tamarit, 2018. "New Evidence on Trade and FDI: how Large is the Euro Effect?," Open Economies Review, Springer, vol. 29(2), pages 451-467, April.
    6. Willem Thorbecke & Hanjiang Zhang, 2009. "The Effect Of Exchange Rate Changes On China'S Labour‐Intensive Manufacturing Exports," Pacific Economic Review, Wiley Blackwell, vol. 14(3), pages 398-409, August.
    7. Soyoung Kim & Yoonbai Kim, 2016. "The RMB Debate: Empirical Analysis on the Effects of Exchange Rate Shocks in China and Japan," The World Economy, Wiley Blackwell, vol. 39(10), pages 1539-1557, October.
    8. James Xiaohe Zhang, 2011. "RMB Appreciation or Fiscal Stimulus, and their Policy Implications," Chapters, in: Lilai Xu (ed.), China’s Economy in the Post-WTO Environment, chapter 9, Edward Elgar Publishing.
    9. Morris GOLDSTEIN & Daniel XIE, 2009. "US Credit Crisis and Spillovers to Asia," Asian Economic Policy Review, Japan Center for Economic Research, vol. 4(2), pages 204-222, December.
    10. Alyson C. Ma & Ari Van Assche & Chang Hong, 2010. "Global Production Networks and the People’s Republic of China’s Processing Trade," Working Papers id:3041, eSocialSciences.
    11. Benno Ferrarini, 2013. "Vertical Trade Maps," Asian Economic Journal, East Asian Economic Association, vol. 27(2), pages 105-123, June.
    12. Dmitry Alexandrovich Izotov, 2012. "The Foreign Trade of Domestic and External Sectors of the Chinese Economy," Spatial Economics=Prostranstvennaya Ekonomika, Economic Research Institute, Far Eastern Branch, Russian Academy of Sciences (Khabarovsk, Russia), issue 4, pages 49-66.
    13. Willem Thorbecke, 2013. "Investigating China's Disaggregated Processed Exports: Evidence that Both the RMB and Exchange Rates in Supply Chain Countries Matter," The World Economy, Wiley Blackwell, vol. 36(10), pages 1245-1260, October.
    14. Jiansuo Pei & Erik Dietzenbacher & Jan Oosterhaven & Cuihong Yang, 2011. "Accounting for China's Import Growth: A Structural Decomposition for 1997–2005," Environment and Planning A, , vol. 43(12), pages 2971-2991, December.
    15. Tunç, Gül İpek & Akbostancı, Elif & Türüt-Aşık, Serap, 2022. "Ecological unequal exchange between Turkey and the European Union: An assessment from value added perspective," Ecological Economics, Elsevier, vol. 192(C).
    16. Matthes, Jürgen, 2010. "Die Bedeutung der Schwellenländer für deutsche Warenexporte," IW-Trends – Vierteljahresschrift zur empirischen Wirtschaftsforschung, Institut der deutschen Wirtschaft (IW) / German Economic Institute, vol. 37(1), pages 15-30.
    17. Heiwai Tang & Fei Wang & Zhi Wang, 2014. "The Domestic Segment of Global Supply Chains in China under State Capitalism," CESifo Working Paper Series 4797, CESifo.
    18. Judith M. Dean & Mary E. Lovely, 2010. "Trade Growth, Production Fragmentation, and China's Environment," NBER Chapters, in: China's Growing Role in World Trade, pages 429-469, National Bureau of Economic Research, Inc.
    19. Liao, Wei & Shi, Kang & Zhang, Zhiwei, 2012. "Vertical trade and China's export dynamics," China Economic Review, Elsevier, vol. 23(4), pages 763-775.
    20. Richard Baldwin, 2013. "Trade and Industrialization after Globalization's Second Unbundling: How Building and Joining a Supply Chain Are Different and Why It Matters," NBER Chapters, in: Globalization in an Age of Crisis: Multilateral Economic Cooperation in the Twenty-First Century, pages 165-212, National Bureau of Economic Research, Inc.
    21. Richard Baldwin & Javier Lopez-Gonzalez, 2015. "Supply-chain Trade: A Portrait of Global Patterns and Several Testable Hypotheses," The World Economy, Wiley Blackwell, vol. 38(11), pages 1682-1721, November.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:rjapxx:v:17:y:2012:i:1:p:171-187. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/rjap .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.