The Unbalanced Trade Between China and the U.S.

The Unbalanced Trade Between China and the U.S. Chenzi Song Eastern Michigan University

The Unbalanced Trade Between China and the U.S. Abstract

Unbalanced trade between the United States and China has existed for over 20 years. The U.S. trade deficit with China is one of the most serious economic issues for U.S. government and businesses. This paper analyzes the causes and impacts of the unbalanced trade between these two countries by comparing the history and current situations and testing the possible variables that may cause the unbalanced trade. The findings are significant. While U.S government argues that Chinese RMBs undervaluation directly results in the U.S. trade deficit with China, the findings show that exchange rate doesnt impact the trade strongly. Moreover, the fast growing GDP of China is a major cause of the unbalanced trade.

The Unbalanced Trade Between China and the U.S. Introduction

Recently, U.S. government argues that the exchange rate of RMB is the major cause of the unbalanced trade between China and the United States. However, foreign trade department of Chinese government points out that the exchange rate of RMB is not the major cause of the unbalanced trade between these two countries. The trade and investment structures of these two countries are different. Also the saving and consumption levels in these two countries are diverse. The above conditions speed up the unbalanced trade. Which side does it sound more rational? The unbalanced trade between China the United States involves in many possible causes and impacts, so that we cannot judge simply. In this paper, I will take a deep look at the unbalanced trade between China and the United States. First, I will provide some important information about the history of trade in order to help understand these different economies and trade structures between these two countries. Second, by analyzing the present trade conditions, I will present the causes and impacts of unbalanced trade between these two countries. Then finally, I will provide some practical recommendations for future work. The United States started trade with China until the early 1970s. Trade grew rapidly after that, and with the full normalization of diplomatic and commercial relations in 1979, the United States became the second largest importer of China and in 1986 was China's third largest partner in overall trade. Most American goods imported by China were either

The Unbalanced Trade Between China and the U.S.

high-technology industrial products, such as aircraft, or agricultural products, primarily grain and cotton. Today, China's main export markets, in order of importance, are the European Union (20.4%), United States (17.7%), Hong Kong (13.4%), and Japan (8.1%). China's main import markets, in order of importance, are Japan (13.3%), European Union (11.7%), South Korea (10.9%), Taiwan (9.1%), and the United States (7.2%). In 2004, the total amount of trade in terms of export and import reached 2.345 trillion USD in the U.S, ranked no.1 around the world. China reached 1154.8 billion USD ranked no. 3. In 2005, the trade of 343 billion between the U.S and China account a large proportion of the total trade amount in each country. (http://www.stats.gov.cn/english/) Many causes drive the unbalanced trade. The undervaluation of the RMB relative to the US dollar is one of the reasons. Also, there has been a shift of low-end assembly industries to mainland China from industrialized countries. Mainland China has become the last link in a long chain of value-added production. Because US trade data attributes the full value of a product to the final assembler, mainland Chinese value added is overcounted. US demand for labor-intensive goods exceeds domestic output. On the other side, China has restricted trade practices in mainland China to protect state-owned enterprises by putting a wide area of barriers to foreign goods and services. These practices include high tariffs, lack of transparency, requiring firms to obtain special permission to import goods, inconsistent application of laws and regulations, and leveraging technology from foreign firms in return

The Unbalanced Trade Between China and the U.S. for market access. Mainland China's accession to the World Trade Organization is meant to help address these barriers. The different trade and investment structures and the diverse saving and consuming levels of these two countries also speed up the unbalanced trade. (World Economic Outlook Database, April 2007) Industry competitions, political issues and nation relationship effect the trade relations between China and the United States. Unbalanced trade between two countries results in severe impacts. For example, in September 2009 a trade dispute emerged between China and the United States, which came after the US imposed tariffs of 35 percent on Chinese tire imports. The Chinese commerce minister accused the United States of a "grave

act of trade protectionism," while a USTR (United States Trade Representative) spokesperson said the tariff "was taken precisely in accordance with the law and our international trade agreements." Additional issues were raised by both sides in subsequent months (Obamas Tire Tariff Draws Beijings Ire. Bloomberg Businessweek ) U.S. trade deficit impacts U.S. economy growth. Workers who lose jobs do eventually find new work or retire, while the benefits from trade, such as lower prices, remain. The problem is the speed at which China has surged as an exporter, overwhelming the normal process of adaptation. (U.S. News: Tallying the Toll of U.S.-China Trade --- Study Sees Americans Bearing High Economic Cost of Imports as Labor Market Struggles to Adapt) China is the worlds largest developing country while the United States is the

The Unbalanced Trade Between China and the U.S.

worlds largest developed country. Although the economy and industry structures are diverse, two countries have huge space for trade. From the view of fair international trade, the unbalanced trade situation will gradually come to the end. For this goal, both governments and corporations should put endeavors. Better communications, better understanding of each other, eliminating the political issues towards business will help the trade between two countries grow healthily. In the literature review section, I will do research on the previous journal articles which presented causes of unbalanced trade between U.S. and China. Then in data section, I will use descriptive statistics and regression analysis to provide the real causes. Finally in conclusion part, I will summarize the situations, causes and impacts of unbalanced trade between U.S. and China. And I will also point out the weakness of the statistic methodology used in data section with practical recommendations. Literature Review The unbalanced trade between China and the United States affects the trade relations between these two countries in a long-term period. In this literature review section, I will take a deep look at the unbalanced trade between China and the United States. Although there are not enough studies on this topic in the literature, the following 11 journal articles attempt to give us some ideas of the causes and impacts of unbalanced trade between these two countries. Also the journal articles which explained the trade relations between Japan and the United

The Unbalanced Trade Between China and the U.S.

States will help us understand this topic better. Japan was the largest economy in Asia before China became, so by comparing trade relationship between Japan and U.S, we can understand the trade relationship between China and U.S. Also they may indicate some ways to improve the trade relations between China and the United States in the future. The U.S. manufacturers have weathered decades of competition from Japan, Korea, and Europe, then why is it hard to compete with China? Pete Engardio and Dexter Roberts with Brian Bremner (2004) give us a simple but powerful reason: because China is different.
In their paper, they describe the China price (unbeaten low labor cost) are three scariest words in the US industry because of Chinas speed, breadth, competition, alliances, size, access and the US policy. Justin Lahart (2011) also points out that the speed at which China has surged as an exporter, overwhelming the normal process of adaptation.

Trade deficit has been a big problem for the US economy for long time not only because of Chinas fast growing GDP. Joseph Quinlan and Marc Chandler (2001) show us a reality that the United States' obsession with its trade deficit belies the fact that corporate America has never been better positioned to compete in the global marketplace. Joseph Quinlan and Marc Chandler (2001) say it is time to say goodbye to Adam Smith's outdated framework of global competition and to embrace instead a more complex understanding of America's economic engagement with the world. So rather than complaining China or emerging countries cheap labor and price, the United State should consider the problem inside the US economy to find

The Unbalanced Trade Between China and the U.S. a better way to survive in the international trade war. The outdated framework is keeping the U.S from seeing the problem within the country. The trade war between Japan and the United States can be a good example for us to

analyze the situations between U.S. and China. In 1977, the United States ran an eight billion dollar trade deficit with Japan, and in 1978 the figure was running 50 percent higher. (Facing up to the Trade Gap with Japan by James C. Abegglen and Thomas M. Hout 1978) James C. Abegglen and Thomas M. Hout (1978) also argue that there is an urgent need for review of the U.S. international economic competitive position and for the development of policies to improve the U.S. position. Roger C. Altman (1994) forecasts that economics will be at the center of international affairs, and the U.S.-Japan partnership will play a key role in determining the course of global events. As we can learn from the previous trade war between Japan and the US, the unbalanced trade between two large economies impacts not only those two countries but also the worlds economy strongly. Both Chinese and the US governments should figure out a best way to improve their positions in the trade war. The impacts of unbalanced trade are serious because each country is trying to reduce the unbalanced trade in improper ways. Tom Barkley and Aaron Back (2011) describe a situation that Washington Accuses China over chicken export duties. On the other hand, Steve LeVine (2009) gives us information that 35% tariff on Chinese tires is way under the 55% levy recommended by the international trade commission.

The Unbalanced Trade Between China and the U.S. We should determine the causes of unbalanced trade between China and the United States from a wide point of view than just a recent point of exchange rate. From the history,

we can find out that the unbalanced trade between China and the United States has existed for long time. David L. Denny and Daniel D. Stein (1973) provide us evidence that a substantial imbalance exists in the commodity trade between the two countries: U.S. exports to China were twelve times U.S. imports in 1973. From a positive point of view, Davis Hale and Lyric Hughes Hale (2003) describes Chinas fast growing productivity as there is no compelling reason to assume that China will become an enemy of the United States. China continues to signal its desire to integrate into the global economy by pursuing liberalization at home and encouraging trade, as well as by joining international institutions, such as the WTO, that promote economic competition and integration, not nationalist rivalry over territory and colonies. Chinas fast growing productivity will eventually benefit the worlds economy. Davis Hale and Lyric Hughes Hale (2008) give us a clear conclusion of the future trade between China and the US: The admission of China to the G-8 process would create a major global forum in which the leading industrialized countries could discuss the impact of China's export boom on other nations' economies and address the environmental impact of Beijing's growing demand for commodity imports and energy resources. In the end, only a skillful combination of structural reforms in China and coordinated multilateral efforts will create a more balanced economic

The Unbalanced Trade Between China and the U.S.

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relationship between Washington and Beijing. Neil C Hughes (2005) suggests that in order to avoid an all-out trade war, the American eagle and the Chinese dragon must learn to respect difference and look for common ground in resolving disputes. In the trade war between these two countries, its a good way to have a win-win future. For the exchange rate issue, Mohsen Bahmani-Oskooee and Yongqing Wang (2007) employ data at the industry level (88 two- and three-digit industries) and recent advances in error-correction modeling to show that real yuan- dollar rate has played a significant role in the trade between the two countries. It contradicts the research that used trade data at the aggregate level. Exchange rate is a possible factor that drive U.S trade deficit with China. In data section, I will use regression analysis to test this factor. Through this literature review, we can have a clear understanding of the unbalanced trade between China and the United States. Although there are many causes and impacts involved in, we are suggested some good ways to improve this situation and the future trade between these two countries will get better by efforts. Data Analysis The unbalanced trade between U. S. and China has existed for over 40 years. During past 30 years (1980-2010), as can be seen in graph 1, the U.S. trade with China was surplus 2.7 billion in 1980. From 1980, the U.S trade with China became in deficit. The deficit had increased very fast to reach to 273 billions in 2010. U.S. imports from China have grown

The Unbalanced Trade Between China and the U.S. much faster than U.S. exports to China.
U.S. trade with China 400 350 300 250 200 150 100 50 0
3.8 1.1 3.9 3.9 321.5 287.8 243.5 337.8 296.4 364.9

11

$ Billions

US Export US Import
100.1 45.6 16.3 15.2 11.7 4.8 41.8 55.2 65.2 71.5 69.6 91.9

1980 1985 1990 1995 2000 2005 2006 2007 2008 2009 2010

Graph 1 Source: U.S. International Trade Commission Data website.

Why have U.S. imports from China have grown much faster than U.S. exports to China? First, as we can see in graph 2, in 2010 the U.S. has trade deficit with all its major trade partners (China, OPEC, EU, Mexico, Japan, ASEAN, and Canada). What we can observe in this data is that U.S. trade deficit doesnt only exist with China, but also with other major countries U.S. trades with. But there is a significant problem in this data which is U.S. trade deficit with China is much higher than any other countries. So we assume that the trade relationship between U.S. and China is unique and different from any other U.S. trade partners.

The Unbalanced Trade Between China and the U.S.

U.S. trade balance with major foreign trade partners ASEAN, -66.3 Japan, -59.8 Mexico, -66.3 EU27, -79.8 OPEC, -95.6 World, -634.6 Canada, -28.3 World China OPEC EU27

12

Mexico Japan ASEAN Canada

China, -273.1

Graph 2 Source: U.S. International trade Commission Data website.

Why is the U.S trade deficit with China unusually high? The graph 3 and 4 show us the major U.S. imports from China and major U.S. exports to China. The first significant difference as we can see is that the major U.S. exports to China are oilseeds, grains, waste, semiconductors, electronic components and aircraft parts. Most of export products are parts and the value of them are relative cheap. However, the major U.S. imports from China are computer equipment and parts, misc. manufactured commodities, communication equipment and parts, and audio and video equipment and parts. Most of the import products are finished good such as computers and the value of them are relatively expensive. The U.S. imports of finished goods and computer products are relatively value-added compared to the U.S. exports of grains and electronic components (raw products). This difference in terms of value between U.S. export products and import products with China make the total amount of U.S. exports much less than imports. Just like Joseph Quinlan and Marc Chandler (2001) said,

The Unbalanced Trade Between China and the U.S.

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rather than complaining China or emerging countries cheap labor and price, the United State should consider the problem inside the US economy to find a better way to survive in the international trade war.
Major U.S. imports from China Computer equipment and parts 70000 60000 50000 40000 30000 20000 10000 0 2005 2006 2007 2008 2009 2010 Misc. manufactured commodities Communications equipment and parts Apparel Audio and vedio equipment and parts

Graph 3 Source: U.S. International trade Commission Data website.

Major U.S. exports to China 12,000 10,000 8,000 6,000 4,000 2,000 0 2005 2006 2007 2008 2009 2010
Resin, synthetic rubber, and artifical & synthetic fiber & filament Oilseeds and grains

$ Million

Waste and scrap

$ millions

Semiconductors and other electronic components Aerospace products and parts

Graph 4 Source: U.S. International trade Commission Data website.

The significant product that drives U.S. total imports value keeping increasing is the computer-finished goods. In the graph 5, we can see that in recent 10 years, share of U.S. imports of computer from China increased from 12% in 2000 to 61.5% in 2010. It means that

The Unbalanced Trade Between China and the U.S.

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China became U.S. major computer supplier and every 6 out of 10 computers sold in the U.S. are made in China. Graph 6 provides us more information about major foreign supplier shift of U.S. computer imports. From 2000 to 2010, U.S. imports computer from foreign suppliers increased from 68.5 billion to 97.2 billion. U.S. has increasing demand of computer imports from foreign suppliers. While U.S. decreased the imports of computer from Japan and Singapore (industrial countries with higher labor fees), U.S. increased the imports of computers from China, Mexico and Thailand (developing countries with lower labor fees). China has the computer technology development and relative low labor cost. Thats why Chinas computer exports to U.S. increased 620% in 10 years.
Share of U.S. computer imports from China 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 0.0% 10.0% 61.7% 57.5% 53.7% 51.5% 47.8% 45.2% 39.8% 29.1% 19.1% 13.8% 12.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0%

Graph 5 Source: U.S. International trade Commission Data website.

The Unbalanced Trade Between China and the U.S.

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Major foreign suppliers of U.S. computer imports 2010 2008

3.5 3.6 5.2

13.6

59.8

3.7 4

6.6 6.2

45.8

3.2

Thailand Singapore Japan Mexico China

$ Billions

2006
2.3

5.6 6.3 6.6

40

2004
2.1

6.6 6.3 7.4

29.5

2002
2.4

7.1 8.1 7.9

12

2000 0

8.7 6.9 8.3

13.4

10

20

30

40

50

60

70

Graph 6 Source: U.S. International trade Commission Data website.

Compare graph 3, 4 and 5, we can clearly see that U.S. demands high-tech product imports such as computer from China while China demands plants and electronic parts imports from U.S. The different values of the demands may drive the U.S. trade deficit with China. Here arises a prediction that even RMB appreciates, U.S. computer makers will find other paradise with cheap labor fee and advanced computer technology to produce computers. This is a nature economic movement which is that producers always want to have lowest cost. Meanwhile, in graph 7, we can see U.S. exports to China increased 378.6% from 2001 to 2010. This growth speed is much faster than any other U.S. major trade partners (Brazil 122.6%, Netherlands 79.5% and etc). In graph 8, we can see that exchange rate of

The Unbalanced Trade Between China and the U.S.

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RMB VS USD depreciate 14.4% during these 10 years. This data challenges Morris Goldstein and Nicholas Lardy (2009)s argument that there should be a modest revaluation of the RMB. While U.S. exports to China has increased fastest among U.S. major trade partners, how can we say that RMBs value is the major cause of the unbalanced trade between U.S. and China? This can also be applied to Justin Lahart's (2011) point that the speed at which China has surged as an exporter, overwhelming the normal process of adaptation. This may be the real cause of U.S. trade deficit with China.

U.S. exports to major foreign trade partners

29.2 17.8

Netherlands South Korea United Kingdom China Canada 0.0

19.5 15.9

35.0 35.4 38.8 48.2

22.2

30.1

2010 2001
91.9 101.5 163.3 163.7 248.2

48.5 40.8 60.5 57.6 19.2

50.0

100.0

150.0

200.0

250.0

300.0

Graph 7 Source: U.S. International trade Commission Data website.

The Unbalanced Trade Between China and the U.S.

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Exchange rate of RMB VS USD Graph 8 Source: Bank of China data websiteexchange rate section

Low labor cost in China is another possible driver of U.S. trade deficit with China. Many U.S. major manufacturing companies have factories in China. They produce goods with very low wages. As we can see in figure 2, hourly compensation cost in China is 0.57 USD in 2002, and it raised to 1.36 USD in 2008.

The Unbalanced Trade Between China and the U.S.

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U.S. dollars Type of enterprise 2002 Total, manufacturing urban units and 1.06 TVEs Manufacturing urban units Manufacturing TVEs 0.57 0.95 0.41 0.62 1.07 0.44 0.66 1.19 0.45 0.73 1.30 0.49 0.81 1.83 1.47 0.64 0.53 0.82 2.38 1.36 2003 2004 2005 2006 20071 2008

Figure 1 Hourly compensation costs of manufacturing employees in China, by type of enterprise, 2002-2008 Source: U.S. Bureau of Labor Statistics data website The U.S. unemployment rate has increased by 114% in 10 years from 2001 to 2011. Exports increase jobs in home country while imports decrease jobs. However, due to lack of enough data, here I cant conclude that U.S. trade deficit directly impacts the unemployment rate in the U.S. Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2001 2002 2003 4.2 5.7 5.8 4.2 5.7 5.9 4.3 5.7 5.9 4.4 5.9 6.0 4.3 5.8 6.1 4.5 4.6 5.8 5.8 6.3 6.2 4.9 5.0 5.7 5.7 6.1 6.1 5.3 5.7 6.0 5.5 5.9 5.8 5.7 6.0 5.7

The Unbalanced Trade Between China and the U.S.

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Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2004 2005 2006 2007 2008 2009 2010 2011 5.7 5.3 4.7 4.6 5.0 7.8 9.7 9.0 5.6 5.4 4.8 4.5 4.8 8.2 9.7 8.9 5.8 5.2 4.7 4.4 5.1 8.6 9.7 8.8 5.6 5.2 4.7 4.5 4.9 8.9 9.8 9.0 5.6 5.1 4.6 4.4 5.4 9.4 9.6 9.1 5.6 5.5 5.0 5.0 4.6 4.7 4.6 4.7 5.6 5.8 9.5 9.5 9.5 9.5 9.2 9.1 5.4 5.4 4.9 5.0 4.7 4.5 4.6 4.7 6.1 6.2 5.5 5.0 4.4 4.7 6.6 5.4 5.0 4.5 4.7 6.8 9.9 9.8 5.4 4.9 4.4 5.0 7.3 9.9 9.4

9.7 9.8 10.1 9.6 9.6 9.1 9.1 9.7 9.0

U.S. unemployment rate Figure 2 Source: Bureau of labor statistic data website

The trade between U.S. and China is impacted by possible factors such as exchange rate, GDP of China, GDP of U.S. and labor cost in China. The following data graphs show the U.S. imports from China and the four factors which may impact the trade. In graph 9, 10, 11, 12, 13 and the descriptive statistics of the data in figure 3, we can see that from 2001 to 2010, U.S. imports from China growth rate has a mean value of 4.77%, minimum growth rate is 25.82% and the maximum growth rate is 25.22%. The RMB exchange rate growth rate

The Unbalanced Trade Between China and the U.S.

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has a mean value of 0.557%. The GDP of China growth rate has a mean value of 6.24%, minimum growth rate is -28.04% and the maximum growth rate is 25.44%. The GDP of U.S. growth rate has a mean value of 0.964%, minimum growth rate is -2.177% and the maximum growth rate is 22.11%. The labor cost of China growth rate has a mean value of 4.244%, minimum growth rate is 1.538% and the maximum growth rate is 8.272%. From the data, we can assume that as RMB depreciate, the U.S. imports from China increase. As the GDP of China grows, the U.S. imports from China increase. As the GDP of U.S. grows, the U.S. imports from China increase. As the labor cost in China grows, the U.S. imports from China increase. However, we need to use regression analysis to determine if the four variables have positive relationship with the U.S. imports from China. From the regression analysis in figure 4 and the P-value of the 5 predictors, we can see that only GDP of China is smaller than 10% which indicates that there is a positive relationship between GDP of China and the U.S. imports from China. When GDP of China growth rate goes up 1%, the U.S. imports from China growth rate goes up 0.3126%. Other variables of exchange rate of RMB, GDP of U.S. and labor cost in China are not significant because their P-value is more than 10%. So here we can conclude that the fast growing GDP of China is the major factor that impacts the U.S. imports from China.

The Unbalanced Trade Between China and the U.S.

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U.S. imports from China growth rate graph 0.3 0.2

growth rate

0.1 0

2002,

2005,

2008,

7~9

4~6

7~9

4~6

7~9

10~12

10~12

-0.1 -0.2 -0.3

2001,4~6

time line

Graph 9 Source: Census.gov U.S. International Trade Data

Chinese Yuan to 1 USD growth rate graph 0.01000 0.00000

growth rate

-0.01000 -0.02000 -0.03000 -0.04000 -0.05000

Graph 10 Source: x-rates.com

20 01 20 , 4~ 02 6 ,1 ~3 10 ~1 2 7~ 9 20 4 05 ~6 ,1 ~3 10 ~1 2 7~ 9 20 4~ 08 6 ,1 ~3 10 ~1 2 7~ 9 4~ 6
time line

10~12

4~6

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China GDP growth rate graph 0.40000 0.30000 0.20000 0.10000

GDP

0.00000 -0.20000 -0.30000 -0.40000 time line

Graph 11 Source: http://www.stats.gov.cn

GDP of US growth rate graph 0.03 0.02 0.01

graph

Graph 12 Source: bea.gov

20 01 , 20 4~6 02 ,1 ~3 10 ~1 2 7~ 9 20 4~ 05 6 ,1 ~3 10 ~1 2 7~ 9 20 4~ 08 6 ,1 ~3 10 ~1 2 7~ 9 4~ 6
-0.01 -0.02 -0.03 time line

20 01 20 , 4~ 02 6 ,1 ~3 10 ~1 2 7~ 9 20 4 05 ~6 ,1 ~3 10 ~1 2 7~ 9 20 4~ 08 6 ,1 ~3 10 ~1 2 7~ 9 4~ 6
0

-0.10000

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Labor cost in China growth rate graph 0.09 0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0

growth rate

Graph 13 Source: U.S. bureau of Statistics data website

Descriptive Statistic Variable US imports from China gr exchange rate growth GDP of China growth GDP of US growth Labor cost in China grow N 39 39 39 39 39 N* 0 0 0 0 0 Mean 0.0477 -0.00557 0.0624 0.00964 0.04244 SE Mean 0.0211 0.00148 0.0302 0.00136 0.00336 StDev 0.1317 0.00927 0.1884 0.00846 0.02101 Minimum -0.2582 -0.04003 -0.2804 -0.02177 0.01538

Variable US imports from China gr exchange rate growth

20 01 , 20 4~6 02 ,1 ~3 10 ~1 2 7~ 9 20 4~ 05 6 ,1 ~3 10 ~1 2 7~ 9 20 4~ 08 6 ,1 ~3 10 ~1 2 7~ 9 4~ 6
time line

Q1 -0.0912

Median 0.0588 -0.00021

Q3 0.1567 -0.00000

Maximum 0.2522 0.00570

-0.01082

The Unbalanced Trade Between China and the U.S. GDP of China growth GDP of US growth Labor cost in China grow Figure 3 0.0312 0.00768 0.02518 0.0791 0.01127 0.03500 0.2544 0.01419 0.06266 0.3371 0.02211 0.08272

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Regression Analysis The regression equation is US imports from China growth = - 0.0355 + 1.39 exchange rate growth + 0.313 GDP of China growth + 4.39 GDP of US growth + 0.68 Labor cost in China growth Predictor Constant exchange rate growth GDP of China growth GDP of US growth Labor cost in China growth Figure 4 Coef -0.03550 1.388 0.3126 4.394 0.685 SE Coef 0.06710 2.580 0.1037 2.694 1.275 T -0.53 0.54 3.01 1.63 P 0.600 0.594 0.005 0.112

0.54 0.595

The Unbalanced Trade Between China and the U.S. Conclusion

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This paper analyzes the causes and impacts of unbalanced trade between U.S and China. The history and current situation of trade between these two countries are compared. From 1970s, the U.S. trade deficit with China has growing steadily and fast. From 1980, the U.S trade with China became in deficit. The deficit had increased very fast to reach to 273 billions in 2010. Many variables may drive the unbalanced trade. The undervaluation of the RMB relative to the US dollar is considered as one of the reasons by many economists. However, in the data section, the regression analysis indicates that there is no positive relationship between exchange rate of RMB and U.S. imports from China. Other factors such as exchange rate of RMB, GDP of U.S. and labor cost in China are not considered as drivers of U.S. trade deficit with China. The findings are striking. However, the methodology of this regression analysis has weakness because it only has quarterly data for 10 years from 2001 to 2010. For further work of examining causes and impacts of unbalanced trade between U.S. and China, industry competitions, political issues and nation relationship should be paid attention to. United States' obsession with its trade deficit belies the fact that corporate America has never been better positioned to compete in the global marketplace. To improve the unbalanced situation of trade, the United State should consider the problem inside the US

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economy to find a better way to survive in the international trade war. Both governments and corporations should put endeavors. Better communications, better understanding of each other, eliminating the political issues towards business will help the trade between two countries grow healthily.

The Unbalanced Trade Between China and the U.S. References David D. Hale and Lyric Hughes Hale. 2008. Reconsidering Revaluation--The Wrong Approach to the U.S.-Chinese Trade Imbalance. Foreign Affairs, January/February 2008

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David Hale and Lyric Hughes Hale. 2003. China Takes Off. Foreign Affairs, Vol. 82, No. 6, pp. 36-53 David L. Denny and Daniel D. Stein. 1973. Recent Developments in Trade between the U.S. and the P.R.C.: A Legal and Economic Perspective. Law and Contemporary Problems, Vol. 38, No. 2, Trade with China, pp. 260-273 James C. Abegglen and Thomas M. Hout. 1978. Facing up to the Trade Gap with Japan. Foreign Affairs, Vol. 57, No. 1, pp. 146-168 Joseph, Quinlan and Marc Chandler. 2001. The U.S. Trade Deficit: A Dangerous Obsession. Foreign Affairs, Vol. 80, No. 3. pp. 87-97 Justin Lahart. 2011. Tally the Toll of U.S.-China TradeStudy sees Americans Bearing High Economic Cost of Imports as Labor Market Struggles to Adapt. Wall Street Journal, Sep27, 2011, pg. A. 5 Neil C. Hughes.2005. A Trade War with China? Foreign Affairs, Vol. 84, No. 4, pp. 94-106 Pete, Engardio and Dexter RobertsWith Brian Bremner. 2004. "The China Price" Business Week. Iss. 3911; pg. 102

The Unbalanced Trade Between China and the U.S. Steve LeVin. 2009. Obama's Tire Tariff Draws Beijing's Ire. Bloomberg business week, Trade September 13, 2009 Roger C. Altman. 1994. Why Pressure Tokyo? Foreign Affairs, Vol. 73, No. 3, pp. 2-6

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Tom Barkley, and Aaron Back. 2011. Washington accuses China over chicken export duties. Wall Street Journal, Sep21, 2011, pg. A. 1 Morris Goldstein, and Nicholas R. Lardy. 2009. The Future of China's Exchange Rate Policy
ISBN Paper 978-0-88132-416-7

Mohsen Bahmani-Oskooee and Yongqing Wang. 2007. U.S.-China Trade at the Commodity Level and the Yuan-Dollar Exchange Rate. Contemporary Economic Policy, Vol. 25