A Behavioral Economics Study of How US Trade Deficits with Asia Result in Hare Crimes in the US

A Behavioral Economics Study of How US Trade Deficits with Asia Result in Hate Crimes in the US

Reducing the US-China trade deficit through the imposition of tariffs on Chinese exports to the US risks retaliatory tariffs by China. The net result may be an involuntary reduction of trade between them which lowers the aggregate welfare in both countries. It will be lose-lose. Moreover, the most likely net outcome of these new country-specific tariffs is the substitution of imports from China by imports from other countries on the part of US importers. Thus, while the US trade deficit with China falls, its trade deficit with other countries will rise. The overall US trade deficit with the rest of the world will not be significantly altered. Almost all economists agree that the aggregate US trade deficit with the rest of the world cannot be reduced without a corresponding reduction in the US investment-saving imbalance, taking the US real GDP as given. However, there is an exception: if there is an autonomous (unanticipated) increase in the demand for exports from the US which increases the real GDP of the US in the process, it is possible for the US trade deficit to be reduced. Indeed, a huge potential exists for the US to substantially increase its exports of agricultural commodities, energy, and education and tourism services to China. Finally, we address the question of what constitutes “fair trade”. There does not seem to be a generally accepted economic definition of “fairness”. Any completely voluntary and non-coercive trade at the prevailing market price should be regarded as “fair”.

Will it Be Possible for the US Dollar to Maintain its Value Against Major Currencies Under the Growing US Government and Trade Deficit?

PurposeIt is a common view to Trump administration and public that devaluation of Chinese currency is the origin of the US trade deficit. However, the previous literature does not support this common view. To better understand the causes of the US trade imbalances with China, this study aims to review the previous literature focusing on the causes of bilateral trade imbalances between the USA and China.Design/methodology/approachReview previous literature according to the different reasons that each paper studies.FindingsBased on the previous literature, the Chinese exchange rate is not the main reason for the US trade imbalances. The official US trade figures overestimate the amount of deficit. The actual causes for the US trade deficit with China perhaps should be the relocation of production to China, low saving in the USA and high saving in China, and the US dollar as the international currency and reserve.Originality/valueBy reviewing previous literature, the authors could better understand the puzzle of the US trade deficit with China.

ABSTRACT: A policy priority of the US government is to reduce America's long-standing trade deficit. Economic planners in the Trump administration blame the postwar world trading system for harming the US economy and hope to change it through wide-ranging tariffs and other measures. Three prominent myths underlie the narrative that the United States has been victimized by trade partners. The first holds that trade liberalization that has left the United States open to mercantilist foreign practices is a primary cause of the aggregate US trade deficit. The second is that the dollar's status as the premier international reserve currency obliges the United States to run trade deficits to supply foreign official holders with dollars. The third is that US deficits are caused entirely by foreign financial inflows that America must accommodate by consuming more than it produces. This paper shows that the realities are more nuanced. While foreign and domestic trade policies can affect both imports and exports separately, they are not principal drivers of their difference, the trade deficit. The United States can supply the world with dollars without trade deficits. Finally, the trade deficit reflects the interplay of foreign and US macroeconomic factors (including China's saving rate and the US government budget deficit) and often US factors are dominant. Higher federal fiscal deficits, for example, will raise US trade deficits despite more import tariffs.

Purpose This paper aims to investigate asymmetric long-run effects of bilateral exchange rate on US trade imbalances with China and to examine if the effects are the same under China’s fixed and managed floating exchange rate systems. Design/methodology/approach The authors estimate both linear autoregressive distributed lag (ARDL) model assuming symmetric effect and nonlinear ARDL model assuming asymmetric effect of exchange rate on US trade deficit with China. The authors use data from 1994Q1 to 2005Q2 (under Chinese fixed exchange rate system), from 2005Q3 to 2021Q3 (under Chinese managed floating exchange rate regime), and from 1994Q1 to 2021Q3 (overall data). Findings The Chow test indicates 2005Q3 is a structure break point. Further, the results suggest the effects of bilateral exchange rate on US trade deficit with China are not the same under different exchange rate systems. The asymmetric long-run effect of bilateral exchange rate does exist. The results also demonstrate the depreciation of Chinese currency will not significantly affect US trade imbalances with China. Research limitations/implications Based on the results, the Chinese Government should embrace a more transparent and flexible exchange rate system. It will not significantly hurt Chinese trade balance, but it will help to reduce the tension between the USA and China. Originality/value All previous literature (except two papers) related to the effect of Chinese exchange rate on US trade deficit with China assume the effect is symmetric, and all (except one) use data under different Chinese exchange rate systems. To the best of the authors’ knowledge, this is the first paper that studies the possible asymmetric long-run effect of bilateral exchange rate under different Chinese exchange rate regimes.

Accelerated depreciation and the US trade deficit Hans-Werner Sinn In 1981 the introduction of the Accelerated Cost Recovery System (ACRS) dramatically reduced the tax depreciation periods for most US corporate investment. This is likely to have caused an investment boom in the US, an increase in world interest rates, and a massive redistribution of world capital towards the US. US trade deficits are the counterpart to this capital flow. The mechanism is straightforward. Double tax agreements mean that interest income is taxed according to the residence principle, hence world financial markets tend to equate pretax rates of interest. Effectively, debt is the marginal source of investment finance, and investment will proceed until its post-tax return equals the pre-tax interest rate. With US corporations enjoying a larger tax offset on depreciation, the US capital stock will expand, interest rates will increase, and the capital stock in the rest of the world will contract. Thus the introduction of ACRS in 1981 may simultaneously explain the US investment boom, the strength of the Dollar, high world interest rates, and the US trade deficit. Conversely, current proposals to abolish or reduce ACRS can be expected to have the opposite effect.

In view of the reality which the US trade deficit expands, this article thought that the factors of the exchange rate, the savings ratio difference, the financial deficit and so on are the US trade deficit origins. But its sustainable faced with challenge, the financial crisis has further promulgated the trade deficit adjustment necessity, so the US trade deficit's adjustment needs adjust two aspects at the background of the globalized from the international cooperation and the internal economy policy to obtain.

This paper investigates the claim that China's exchange rate policy causes the US trade deficit with China to grow. Although there is no evidence that changes in the exchange rate cause the trade deficit to rise in the short run, a statistically significant long‐run relationship between the RMB/dollar exchange rate and the US trade deficit with China is detected. As the value of the dollar declines (or RMB appreciates), ceteris paribus, so does the trade deficit. Hence, there is a need for China to adjust its exchange rate policy to help reduce the ever mounting US trade deficit.

In the context of the debate on the global imbalances, this study investigates the determinants of US trade balance in a Non-linear ARDL framework which accounts for the asymmetric and nonlinear effects of real exchange rate dynamics. Drawing on the data from 1994Q1 to 2018Q1, our key empirical findings suggest significant evidence of short and long run asymmetries between the real effective exchange rate, US trade balance and its determinants. An asymmetric cumulative dynamic multiplier analysis showed evidence of an asymmetric J-curve. Furthermore, our empirical results showed that price stability, productivity, domestic savings and fiscal discipline are crucial for determining the US trade balance in the short to long term. Empirical findings of this study contribute to the contemporary debate on the US trade deficit and have profound policy implications for the competitiveness of the US economy and its external balance.

In the context of the debate on theglobal imbalances, this study investigates the determinants of US trade balance in a non‐linear ARDL framework, which accounts for the asymmetric and non‐linear effects of real effective exchange rate dynamics. Drawing on the data from 1994Q1 to 2018Q1, our key empirical findings suggest significant evidence of short‐ and long‐run asymmetries in the relationship between the real effective exchange rate, US trade balance and its determinants. An asymmetric cumulative dynamic multiplier analysis shows evidence of anasymmetric J‐curve. Furthermore, we find that the price stability, productivity, domestic savings and fiscal deficit/discipline are crucial for the US trade balance in the short to long term. Empirical findings of this study contribute to the contemporary debate on the US trade deficit and have profound policy implications for the competitiveness of the US economy and its external balance.

The US trade deficit has been growing for over 25 years and has been accompanied by enlarging freight rate differentials. While traditional models of trade have ignored these gaps assuming symmetry across all bilateral trade costs, the specific linkages between trade imbalances and international transportation costs have remained unexplored. Given the current trade policies, the implications arising from the endogenous adjustment of bilateral transport costs to policy‐induced changes in the US trade deficit are of particular importance. To break new ground on this issue, we develop and estimate a model of international trade and transportation that accounts for the effects of persistent trade imbalances. The theoretical results are supported by our empirical analysis and indicate that bilateral transport costs adjust to a country's trade imbalance. The implication is that a unilateral import policy, for example, will cause spillover effects into the bilaterally integrated export market. To illustrate, we use our empirical results to simulate the anticipated spillover effect from the Chinese ban on waste imports. We find that China's ban and the projected 1.5% rise in the US trade deficit will lead to not only a 0.77% reduction of transport costs charged on US exports to China but also a 0.34% increase in transport costs on US imports from China.

abstractChina and Germany are comparable in terms of having persistent trade surplus with the USA, but they differ in how their currencies are valued. By invoking the China–Germany comparison, this paper finds that there is weak, if any, statistical association between the US trade deficit and the exchange rate. This finding is robust to long-run vs. short-run horizon, without vs. with an instrumental variable, and in-sample fitting vs. out-of-sample forecasting. This paper predicts that the US trade deficits with China and Germany will continue to rise in the presence of a recovery in the US economy.

That the rest of the world will absorb the reduction of the US trade deficit is a matter of accounting: because this deficit is the trade surplus of the rest of the world, eliminating one means eliminating the other. What is not so evident is which countries will absorb this reduction, an issue of growing interest in view of the significant re-allocation of productive factors that are likely to emerge. That the US trade deficit will improve in response to a real depreciation of the dollar is not in doubt. What is not so clear is how long it will take, an important question given the constraints that external imbalances impose on the design of macroeconomic policy.KeywordsPrice ElasticityMean Absolute Percentage ErrorTrade FlowBilateral TradeIncome ElasticityThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

In this paper, we use a dynamic general equilibrium model of an open economy to assess the quantitative effects of fiscal shocks on the trade balance in the United States. We examine the effects of two alternative fiscal shocks: a rise in government consumption, and a reduction in the labour income tax rate. Our salient finding is that a fiscal deficit has a relatively small effect on the US trade balance, irrespective of whether the source is a spending increase or tax cut. In our benchmark calibration, we find that a rise in the fiscal deficit of 1 percentage point of gross domestic product (GDP) induces the trade balance to deteriorate by 0.2 percentage point of GDP or less. Noticeably larger effects are only likely to be elicited under implausibly high values of the short‐run trade price elasticity, or of the share of liquidity‐constrained households in the economy. From a policy perspective, our analysis suggests that even reducing the current US fiscal deficit (of 3% of GDP) to zero would be unlikely to narrow the burgeoning US trade deficit significantly.