This dissertation employed numerous research methodologies in analyzing the factors affecting U.S.-China trade. First, a detailed history is complied that chart and clarify the rise of political and economic relations between the U.S. and the People''s Republic of China beginning in the 1980s and extending to 2010. Second a aomplete review of the literature is undertaken to properly assess which factors are most important in determining trade flows. This literature is not be limited to academic journal articles, but also include: books, working papers, conference reports, publications of research and policy institutions, as well as all relevant Congressional committee hearings and government research reports on U.S.-China trade issues. Third, comprehensive primary source data on U.S.-China trade is collected and processed for use in econometric models. Much of this data is highly disaggregated, and at the state level. Numerous specifications on a basic gravity model will then be estimated and specific hypotheses dealing with the sensitivity of U.S.-China trade to movements in exchange rates, and other variables will be tested. This model is especially suited to panel data relationships and is less constrained micro-economically.
When on considers the trade between these two major economies, it''s on both sides interest perhaps to lower the U.S. trade deficits with China. In addition, U.S. trade with China is only one of a number of factors affecting manufacture employment, including increased productivity growth. Employment shifts to the service sector, and the overall trade deficit. It is also not clear to what extent production in certain industrial sectors has shifted to China from the United States, as opposed to shifting to China from other low-wage countries, such as Mexico, Thailand, Cambodia, Laos, Vietnam, etc. The extensive engagement of foreign multilateral corporations in China''s manufactured exports further complicated the issues of who really gets benefits from China''s trade, as well as the consequence of a rising U.S. trade deficit with China, since a large share of U.S. imports are coming from foreign firms, including U.S. firms, that have shifted production from one country to China. Still there is a considerable debate among scholars over what policy options would promote U.S. economic interest since changes to the current system would produce both winners and losers in the U.S., as well as in China.
Finally, we have estimated simple gravity models between China and the fifty states of America. The data is paneled, but only extends to four years 2008-2011. The major goal of the empirical work in this dissertation is to try to shed light on the continuing controversy surrounding the effect of changes in the RMB and U.S. exports to and imports from China. Many commentators believe that a rise in the value of the RMB relative to the U.S. dollar would increase U.S. exports to China and reduce U.S. imports from China. They claim this would help to rebalance U.S. trade with China and force China to consider policies to stimulate domestic demand. We were also interested in determining the effect of incomes or GDP on the trade flows between China and the fifty U.S. states.