Exchange Rate Policies and USA–China Trade Balance

Georgios Bertsatos, Nicholas Tsounis and George Agiomirgianakis

International Journal of Finance & Economics, 2025, vol. 30, issue 4, 3974-3985

Abstract: We investigate the effects of the real exchange rate on the trade balance between the USA and China by using a median threshold in non‐linear modelling, controlling for several factors. Non‐linear autoregressive distributed lag (NARDL) models are estimated with zero threshold, as well as with median threshold, and this is the first time in the USA–China literature of balance of trade. Quarterly data are employed, and the examined sample covers the period 1995–2023. It appears that the threshold choice matters when it comes to policy implications. Specifically, NARDL with the conventional zero‐threshold analysis could lead to misleading policy proposals, especially when there are strongly unequal probabilities in the USD appreciation and depreciation regime. In our case, the traditional analysis based on zero threshold leads to diametrically opposite policy suggestions of what the alternative methodology of median threshold would suggest. We find that a nominal USD appreciation suggests a perpetual improvement of the US trade balance, and such an improvement could be further magnified if the US prices increase more rapidly than China's prices (e.g., as in the period from 2020 onwards). Evidence also shows that the US balance of trade could be temporarily benefitted by medium or large USD depreciations in real terms, and such an improvement could be notably facilitated when the US–China prices’ differential is downward sloping (e.g., as in the 2006–2019 period).

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1002/ijfe.3102

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:ijfiec:v:30:y:2025:i:4:p:3974-3985

Ordering information: This journal article can be ordered from
http://jws-edcv.wile ... PRINT_ISSN=1076-9307

Access Statistics for this article

International Journal of Finance & Economics is currently edited by Mark P. Taylor, Keith Cuthbertson and Michael P. Dooley

More articles in International Journal of Finance & Economics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().