Currency Manipulations and Bilateral Trade Between China and the USA

DOI10.1177/0015732516681869
AuthorJie Duan,Masoud Moghaddam
Date01 August 2017
Publication Date01 August 2017
SubjectArticles
Currency Manipulations
and Bilateral Trade
Between China and
the USA: A Fourier
Gravity Approach
Masoud Moghaddam1
Jie Duan1
Abstract
The US trade deficit with China has existed for a long time, and its dollar value
has been on the rise recently. It is widely believed that the main culprit is the
manipulated value of Renminbi relative to the US dollar. Towards that end, this
article re-examines the spot exchange rate and bilateral trade nexus using the
Fourier approximation and a variant of the well-known gravity model during the
sample period 1993: q1–2014: q1. Although China’s exports to the US Granger
cause the exchange rate in a co-integrated space, the findings of a vector error
correction model indicate that there is not a strong relation between the two.
Indeed, within the aforementioned sample, only 15.52 per cent of changes in
China’s exports to the USA are attributable to changes in the spot exchange
rate. This is noticeably much smaller than impacts of the other variables utilized
in the estimated gravity model. As such, the palpable trade imbalance between
the USA and China cannot be single-handedly blamed on the spot exchange rate
manipulations.
JEL: F1, F3
Keywords
Bilateral trade, Fourier approximation, gravity model, co-integration, vector
error correction, variance decomposition
Foreign Trade Review
52(3) 171–184
2017 Indian Institute of
Foreign Trade
SAGE Publications
sagepub.in/home.nav
DOI: 10.1177/0015732516681869
http://ftr.sagepub.com
Corresponding author:
Masoud Moghaddam, SH-384, Department of Economics, St. Cloud State University, St. Cloud, MN
56301, USA.
E-mail: mmoghaddam@stcloudstate.edu
1 Department of Economics, St. Cloud State University, St. Cloud, MN, USA.
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