Exchange Rate Adjustments and US Trade with China: What does a State Level Analysis Tell Us?

Firat Demir and Wu Chen ()
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Wu Chen: College of Business Administration, Plymouth State University, 17 High Street, MSC27Plymouth, NH 03264, USA

Global Economy Journal, 2017, vol. 17, issue 2, 14

Abstract: In this paper we explore the trade effects of bilateral real exchange rate changes between the 50 US states and China over the period of 2005–2012. The empirical results based on state-level trade flows and state-level relative prices suggest that the long-run real exchange rates elasticity of US exports to China is in the range of [–3.77, –2.85] and that of Chinese exports to the US is in the range of [–0.23, –3.34]. We also find that state-level differences in human capital and financial development are significant determinants of their export performances with respect to China. Based on the most optimistic scenario, our results suggest that the RMB needs to further appreciate against the dollar by at least 1.8 percent a year for 16 years for the US to achieve balanced trade with China.

Keywords: exchange rates; bilateral trade; US trade deficit; China; state level analysis (search for similar items in EconPapers)
JEL-codes: E44 F14 F31 G15 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1515/gej-2016-0059

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