Relationship of Sino-US Trade Balance and RMB Exchange Rate

Based on annual data from 1994 to 2005, the paper showed that RMB exchange rate appreciation have influence on China-US trade balance in the long run to a certain extend but not the main reason for China-US trade imbalances through cointegration analysis and Granger causality test. Development of U.S. economy and domestic policy in U.S. can be said to the main reason for China-US trade surplus. In the current economic situation, China-US trade surplus is still one of the important engines of economic development. So U.S. economic downturn leading to the decline in our exports has to be guarded against. On the other hand, the opportunity of RMB exchange rate appreciation can be utilized to adjust our economic structure and accelerate the pace of industrial upgrading.