The effects of Chinese exchange rate depreciations on the bilateral trade relationship between the US and China

Abstract

This paper examines the impacts of real exchange depreciations on the bilateral trade between the US and China. Both the theoretical predictions and the empirical evidence suggest that Chinese real exchange rate depreciation would stimulate Chinese exports. Using an Error Correction Model the we estimate the following long run effects during the period between Q1 1995 and Q4 2013: a 1 % depreciation of the Chinese RMB would increase Chinese exports by 0,271 % and decrease US exports by 0,62 %. This however is dwarfed by the real effects of increasing economic activity in the importing countries.