Factors Analysis of the Electronics Industry Trade Imbalance between the US and China

Abstract

<p>The US and China trade imbalance is a highly debated topic, and cause of trade conflict between the US and China. One particularly strong area of the trade imbalance is the electronics industry, which as of the year 2013 represented more than 45% of the total trade balance, the largest subsection of any industry. In order to understand the macroeconomic factors influencing overall trade balance as well as trade balance in the Electronics Industry, this study uses Ordinary Least Squares Regression analysis model to examine how macroeconomic factors such as Exchange Rate, China GDP, US GDP, and CPI affect the trade balance. The results are then compared to an equivalent analysis on the electronics industry using factors such as China Electronics Industry Production, US Electronics Industry Production, Exchange Rate, and CPI. The findings are surprising, showing that the same factors that are traditionally strongly correlated with a change in the overall trade balance, actually have an opposite effect on the Electronics industry trade balance. This paper explores not only what macro economic factors cause the trade imbalances, but also why they happen.</p>