Updated On — 7th Sep, 2020
Last Updated on September 7, 2020 by admin
Trade balance means that a country’s domestic and foreign trade imports and exports in a given year basically tend to balance. Looking at the foreign trade policies and practices of the governments of various countries (regions) around the world, this phenomenon is rare. Generally speaking, the government of a country should try to maintain a basic balance of imports and exports in foreign trade, with a slight surplus, which is conducive to the healthy development of the national economy.
Introduction Of A Country Trade Balance
If a country has frequent trade deficits, its national income will flow out of the country, weakening its economic performance. Government To improve the situation, we must take the country’s currency devaluation, because currency decline, that is disguised export commodity prices lower, can improve the competitiveness of export products.
Therefore, when the country’s foreign trade deficit expands, it will be negative for the country’s currency and the country’s currency will fall; conversely, when there is a foreign trade surplus, it will be good for the currency. Therefore,
The status of international trade is a very important factor affecting foreign exchange rates. The trade friction between Japan and the United States fully illustrates this point. The U.S. trade deficit with Japan has been in deficit year after year, causing the deterioration of the U.S. trade balance. In order to limit Japan’s trade surplus with the US, the US government put pressure on Japan to force the yen to appreciate it.
The Japanese government is doing everything possible to prevent the yen from appreciating too fast in order to maintain a more favorable trade situation. Starting from the impact of a country’s foreign trade situation on the exchange rate, it can be seen that the balance of payments situation directly affects the changes in a country’s exchange rate.
If a country has a surplus in its balance of payments, the country’s currency demand will increase, and the foreign exchange flowing into that country will increase, leading to an increase in the country’s currency exchange rate.
On the contrary, if a country has a deficit in its balance of payments, the demand for that country’s currency will decrease, and the foreign exchange flowing into that country will decrease, resulting in a decline in the country’s currency exchange rate and devaluation of the country’s currency. Specifically, in the balance of payments items, in addition to the above trade items, the capital account has the greatest impact on exchange rate changes.
The surplus or deficit of the trade balance directly affects the rise or fall of the currency exchange rate. For example, an important reason for the decline in the exchange rate of the U.S. dollar is that the U.S. trade deficit is getting worse. On the contrary, due to the huge trade surplus, Japan’s balance of payments is relatively good, and the yen’s foreign exchange rate is on the rise.
Similarly, the surplus or deficit of the capital account directly affects the rise and fall of the currency exchange rate. When a country’s capital account has a large deficit and other items in the balance of payments are not enough to make up for, the country’s balance of payments will have a deficit, which will cause the country The foreign exchange rate of currencies fell. On the contrary, it will cause the domestic currency exchange rate to rise.
China trade balance
Overview of China Trade Balance
In January 1979, China and the United States formally established diplomatic relations. In July of the same year, the two governments signed the “China-US Trade Relations Agreement,” giving each other MEN status. Since then, China-US economic and trade has entered a period of rapid development.
According to Chinese statistics, The China trade balance and the United States was 2.45 billion U.S. dollars in 1979, and reached 42.84 billion U.S. dollars in 1996, with a cumulative total of 260.6 billion U.S. dollars in 18 years. Since 1979, the United States has become China’s third-largest trading partner and second in 1996.
Big trading partner. According to statistics from the United States, the bilateral trade volume was 2.37 billion U.S. dollars in 1979, 63.5 billion U.S. dollars in 1996, and a total of 376 billion U.S. dollars in 18 years; China was the 24th trading partner of the United States in 1980 and rose to fifth in 1995. Although the statistics of the two countries are not the same, the trade statistics of both sides show that in the past 18 years, the two countries’ trade has increased by more than 18% annually. This is the mainstream of China-US economic and trade development.
In 1996, according to their respective statistics, China’s imports from the United States accounted for 11.6% of China’s total imports, and the United States’ imports from China accounted for 5.42% of the United States’ total imports.
The United States is one of the fastest-growing markets for Chinese exports, and China is also one of the fastest-growing markets for US exports. From 1990 to 1996, the statistics of the US exports to China showed an average annual growth rate of more than 16%, which was much higher than the growth rate of US exports during the same period, and ranked at the forefront of US exports to other countries.
The fundamental reason for the rapid growth of between China trade balance and the United States trade balance lies in the large differences in resource conditions, economic structure, industrial structure, and consumption levels between the two countries, and the economies are complementary. China is a developing country with low labor costs, but lack of funds and relatively backward technology.
The United States is an economically developed country with sufficient capital and advanced technology, but its labor costs are high. China mainly exports labor-intensive products such as textiles, clothing, shoes, toys, household appliances, and travel bags to the United States.
The United States mainly exports capital and technology-intensive products such as airplanes, power equipment, mechanical equipment, electronic devices, communication equipment, chemicals, and agricultural products such as grain and cotton to China trade balance. The complementary and mutual benefit of trade product structures has strongly promoted the development of trade between the two countries.
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