Does the Renminbi exchange rate have an impact on U.S.-China trade? Specifically how does it affect?

The link between the exchange rate and trade, exchange rate changes affect the trade balance of several paths from the theoretical development we can see, exchange rate changes can be through the following channels to affect the trade balance.1, exchange rate changes caused by changes in the price of trade commodities on the trade balance of trade exchange rate changes can be caused by the changes in the relative price of commodities in the domestic and international markets to affect the import and export and the trade balance. In Marshall a Lerner conditions are established, the depreciation of the local currency can reduce the relative price of domestic products, improve the relative price of foreign products, so that the price of exports to enhance the competitiveness of commodity prices, prices of imported goods, is conducive to expanding the volume of exports, imports to limit the promotion of trade balance of payments to improve. But the trade balance on exchange rate changes in this price transfer and competitive effect, by two factors. On the one hand, it is affected by whether there is a time lag in the adjustment of exchange rate changes to the prices of imported and exported goods and the length of the time lag. In the international market, the change in the price of financial assets guided by exchange rate changes can be accomplished in an instant, but the change in the price of imports and exports guided by it is relatively delayed, so that the depreciation of the local currency may lead to a deterioration of the country's trade balance first and then gradually improve it, and there is a J-curve effect. On the other hand, it is affected by the extent of changes in the prices of imported and exported goods caused by exchange rate changes. Most international markets today are not perfectly competitive markets, and most commodities are not homogeneous products. In this case, the magnitude of import and export price changes may not be equal to the magnitude of exchange rate changes. Since imports and exports are relative, exchange rate pass-through is defined as the magnitude of price change due to exchange rate changes. However, due to the exporter has a certain decision price and production rights, and changes in commodity prices will inevitably lead to changes in the elasticity of demand, so that the depreciation of the national currency does not necessarily cause the price of imports to rise in the same proportion, the general price of imports to rise less than the magnitude of the exchange rate depreciation, which is incomplete exchange rate pass-through.2. 2, exchange rate changes caused by changes in income on the balance of payments impact of the exchange rate can be through the Impact on national income to have an impact on the balance of trade. There are two main aspects: on the one hand, if the depreciating country exists not yet fully utilized resources, the depreciation can stimulate the domestic and foreign residents of the country's demand for the product. This expenditure-switching effect of devaluation improves the autonomous trade balance, and this improvement in the autonomous trade balance raises a country's national income through the Keynesian multiplier. An increase in national income raises domestic spending accordingly. If the depreciation-induced improvement in the autonomous trade balance exceeds the increase in imports due to the increase in national income, i.e., if the Robinson I Metzler condition is satisfied, the main effect of currency depreciation remains an improvement in the trade balance. On the other hand, devaluation usually results in a deterioration of the terms of trade by causing an increase in the prices of imported goods and a decrease in the prices of exported goods. If the share of national income spent on imports is high, the terms of trade have a fairly important effect on spending. Following a depreciation of the domestic currency, for the same level of nominal income, consumers can only buy fewer goods (both domestic and foreign), i.e. leading to a fall in real income. This will inevitably lead to a decline in the depreciating country's expenditures, thereby improving the balance of trade.3. Changes in the price level caused by exchange rate changes on the balance of trade exchange rate changes in addition to affecting the relative price of traded goods, but also affect the general price level of the country, which in turn affects the balance of trade. After the devaluation of the currency, the domestic price level can be affected mainly through three channels. First, depreciation increases the price of imports expressed in local currency. The rise in the local currency price of imports, on the one hand, directly affects the price of imported raw materials and semi-finished products, which in turn increases the cost of domestic goods, such as the current price of energy; on the other hand, due to the rise in the price of imported consumer goods, will inevitably promote the rise of domestic wages, indirectly affecting the cost of domestic goods. These two aspects **** the same lead to the domestic price level of the country. Second, if the devaluation promotes an improvement in the balance of trade in the short run, it causes an increase in the demand for exports, and thus an increase in aggregate demand, in the devaluing country. Under conditions of full employment, when exports are greater than imports, this means that the level of aggregate income in the country is greater than the supply of goods and services for domestic demand. Under this condition, the country can suffer from inflation due to over-exports resulting in inadequate supply of domestic products. This situation is particularly exacerbated in a shortage economy. Conversely, when domestic demand is insufficient, exports relieve deflationary pressures and promote economic development. If a country has not yet achieved full employment, economic growth will only lead to greater resource utilization and closer to full employment. Again, a trade balance surplus after devaluation will increase foreign exchange reserves. An increase in foreign exchange reserves will result in an increase in base money placed by the central bank through the purchase of foreign exchange. In fact, when international reserves increase, it is likely to lead to an increase in domestic prices. A rise in domestic prices affects the trade balance in two ways. First, with the nominal money supply unchanged, higher prices cause the real cash balance held by the public to fall. In order to bring the real cash balance back to the level of willingness to hold, the public will, on the one hand, sell their securities, which will lead to a rise in market interest rates and a fall in investment; on the other hand, they will reduce their consumption expenditure, and the result of these two effects will be a fall in total domestic expenditure. This will inevitably affect the movement of the trade balance. Second, domestic prices rose more than the nominal exchange rate depreciation of the local currency, while assuming that the foreign price level is unchanged, the nominal depreciation not only does not cause the real depreciation of the currency, but will lead to a real exchange rate rise, and ultimately worsen the balance of trade. 4, exchange rate changes caused by changes in expenditures on the balance of trade exchange rate changes can affect the trade balance by affecting the changes in expenditures and thus affect the trade balance. Expenditure changes have two forms, one is on behalf of structural changes in expenditure transfer, the other is on behalf of the number of changes in expenditure changes. The impact of exchange rate changes on the balance of trade is accomplished through both expenditure transfers and expenditure changes***. Changes in the exchange rate cause changes in the relative prices of goods in the two countries; a depreciation of the domestic currency decreases the foreign currency price of the country's exports and increases the domestic currency price of the country's imports, so that the country's goods are cheaper relative to foreign goods. Such a depreciation causes domestic and foreign expenditures to be shifted from foreign to domestic goods. Whether the expenditure shift is realized and whether its effect is significant depends on the elasticity of supply and demand for domestic and foreign goods. When the elasticity of supply and demand is high, a change in the exchange rate can change the balance of trade by affecting expenditure transfers. The effect of exchange rate changes on the balance of trade is not only achieved by affecting expenditure transfers, but also by changing the size of expenditures. When the local currency depreciates, the country's exports increase and imports decrease, and the trade balance improves. But as the country's exports increase, the country's national income will increase, and thus the country's expenditure scale will increase, which will lead to an increase in imports, so that the degree of improvement in the balance of trade will be reduced. This is the principle that exchange rate changes affect the trade balance through changes in the quantity of expenditure and thus the trade balance. If we consider the backward pass-through effect, then after the depreciation of the local currency the national income of the country increases, then the scale of expenditure in the country expands, which improves the national income of the foreign country, which in turn increases the demand for the products of the country, which expands the exports of the products of the country. Thus the impact of exchange rate changes on the balance of trade is more complex. Second, the appreciation of the renminbi on China's import and export trade positive impact 1, the appreciation of the renminbi to help reduce trade friction for a long time, China mainly relies on the number of labor-intensive products to achieve the quantitative expansion of export-oriented strategy, with the price advantage to occupy the international labor-intensive industries in the middle and lower-end of the market. In the face of such a high market share, will inevitably increase China's trade conflicts with other countries. 2, the appreciation of the renminbi can bring about an improvement in the terms of trade The appreciation of the renminbi will reduce the price of imported products, especially the price of raw materials and high-tech equipment. Enterprises will accelerate the introduction of technology, improve production efficiency, realize the dynamic comparison of product upgrading. At the same time, because most of the imported products are used for re-export, so as the enterprise productivity increases, the export product quality has been improved, which will help China's enterprises from the low end of the product industry chain to the middle and high end of the extension, so that the terms of trade has been improved. 3, the appreciation of the RMB will promote the optimization and upgrading of trade structure. Through the means of RMB appreciation, we can efficiently squeeze out those low technology content and value-added and poor management in the manufacturing industry, which is in line with the development direction of China's industrial structure transformation. At the same time, the appreciation of the renminbi will cause more intense competition within the industry, incentives for enterprises to enhance competitiveness through technological management innovation, so that those who are rich in innovation, competitive manufacturing industry, the strong become stronger, and can reduce the inefficient enterprises in the overseas vicious competition with each other, in addition to speeding up the pace of the enterprise "to go out". Third, the appreciation of the renminbi through the import and export may show the negative effects of 1. by the appreciation of the renminbi produced by the commodity structure changes will affect the interests of some regions and residents of resource commodities, part of the bulk of agricultural products and low value-added manufactured goods export growth slowdown or even decline in the short term on the high degree of resource dependence in central and western, the proportion of agriculture in the greater part of the place's economic development, part of the agriculture-based farmers' income, part of low-skilled laborers' income, and the economic development of the local community, the economic development of the local community and the local community. Income of some agricultural farmers, part of the employment of low-skilled workers may have a certain adverse impact. 2. RMB appreciation may cause certain difficulties for the export of large-scale complete sets of equipment, there are some large-scale complete sets of equipment for export from the contract to the delivery of the use of 5-10 years, the payment time may be longer. If the renminbi to maintain long-term appreciation, enterprises are difficult to predict the level of the forward exchange rate, and financial institutions generally only provide about one year of foreign exchange hedging tools, so the enterprise to bear the exchange rate risk and the cost of risk avoidance will be larger. 3. If the appreciation of the renminbi is too fast and too fierce, will cause a decline in exports, affecting the steady growth of the national economy if the renminbi appreciation is too fast and the magnitude of the too large, then it is on the import and export growth impact may not be so moderate. May not be so mild. First, it may cause the export growth rate fell sharply, so not only on resource, low price and low value-added commodities, but also on the whole export processing industry development and employment caused by a big blow; Secondly, it may stimulate a part of the goods imported in large quantities, impact on the domestic market, and even cause some deflation. 4. trade imbalance with the U.S. and Europe will continue, but the growth of surplus may be slowed down due to the rigidity of demand and structural complementarities, even if the demand for the RMB appreciation of the RMB is too fast and too large, then its impact on the import and export growth may not be so mild. Due to the existence of demand rigidity and structural complementarity, even if the exchange rate of the RMB against the currencies of the United States, Europe, Japan and the three major trading partners of the exchange rate of more than 5% appreciation, China's trade surplus with the United States, Europe, and Japan, South Korea and other large trade deficits will still be there, but the growth of the surplus (deficit) will be slowed down. This is conducive to ease the disputes and friction between China and its major trading partners. Fourth, countermeasures and suggestions 1, change China's development strategy, from export-oriented to domestic demand. As the world's most populous developing countries, rely solely on export-oriented development strategy is very dangerous, over-reliance on the international market, it is easy to be hit by foreign markets, which affects the sustainable development of the economy. The policy of expanding domestic demand can offset the possible decline in foreign demand after the appreciation of the RMB. 2. Streamline the interaction between the exchange rate and the terms of trade, improve the trade situation, and promote economic development. The focus is on the short term, the real effective exchange rate of the yuan moderate appreciation will improve the deteriorating terms of trade, not only can limit the growth of impoverishment due to the increase in the volume of exports, at the same time on the domestic cost of factors and the structure of import and export commodities will have an impact. Participate in economic globalization of countries or regions, especially like China's large developing countries, must coordinate the relationship between growth and development, not only to give full play to the country's comparative advantage, but also pay more attention to the formation of dynamic comparative advantage, in the quantitative growth at the same time pay more attention to improve the quality and level. 3, adjusting China's import and export commodities trade structure, and promote industrial upgrading. From the structure of China's trade commodities can be seen, China's exports of labor-intensive products, the elasticity of foreign demand is small, and face fierce competition from developing countries, while imports of high-tech products and machinery and equipment, the elasticity of domestic demand is relatively high, this trade structure is not conducive to the improvement of China's foreign trade. We should strive to increase the proportion of manufactured goods in exports, improve the supply elasticity of export products, but also pay attention to the introduction of technology and product research and development, pay attention to quality, create brand effect, improve the technological content of export commodities, reduce the dependence of high-tech products such as optics, medical care, precision instruments and equipment, etc., to foreign countries, through the import and export of both sides of the efforts to alleviate the appreciation of the renminbi on the adverse effects of China's trade. 4, vigorously develop various forms of foreign trade. We should speed up the implementation of the strategy of going out, establish an overseas investment insurance system and a risk warning mechanism, encourage capable enterprises to invest abroad, and increase energy- and resource-oriented foreign investment. This will not only enhance the operational capacity of our enterprises, but also bypass trade barriers, reduce trade friction, expand exports, but also to meet our energy and raw material dependent enterprises on energy as well as raw material needs.