The connection between exchange rate and trade 1. Several paths through which exchange rate changes affect trade balance. From theoretical development, we can see that exchange rate changes can affect trade balance through the following channels. 1. Changes in the price of traded commodities caused by exchange rate changes have an impact on trade balance. Exchange rate changes can affect imports and exports and trade balance by causing changes in the relative prices of commodities in domestic and international markets. When the Marshall-Lerner condition is established, the depreciation of the domestic currency can reduce the relative price of domestic products and increase the relative price of foreign products. This will enhance the price competitiveness of export commodities and increase the price of imported commodities, which is conducive to expanding export volume, restricting imports, and promoting trade balance. improvement. However, the price transmission and competitive effects of trade balance on exchange rate changes are affected by two factors. On the one hand, it is affected by whether there is a time lag and the length of the time lag when the exchange rate changes to the adjustment of import and export commodity prices. In the international market, the changes in financial asset prices guided by exchange rate changes can be completed in an instant, but the changes in import and export prices guided by it are relatively slow. Therefore, the depreciation of the local currency may cause the country's trade balance to first deteriorate and then gradually improve. There is a J curve. effect. On the other hand, it is affected by the price changes of import and export commodities caused by exchange rate changes. Most international markets today are not perfectly competitive markets, and most goods are not homogeneous. In this case, the extent of changes in import and export prices may not be equal to the extent of exchange rate changes. Since imports and exports are relative, exchange rate pass-through is defined as the extent of price changes caused by exchange rate changes. However, since exporters have certain rights to determine prices and output, and changes in commodity prices will inevitably cause changes in demand elasticity, the depreciation of the domestic currency will not necessarily cause a corresponding increase in the price of imported goods. Generally, the increase in the price of imported goods is less than the exchange rate. The extent of depreciation is incomplete exchange rate transmission. 2. Income changes caused by exchange rate changes have an impact on trade balance. Exchange rate changes can have an impact on trade balance by affecting national income. There are two main aspects: on the one hand, if the devalued country has resources that have not yet been fully utilized, the devaluation can stimulate domestic and foreign residents' demand for the country's products. The expenditure conversion effect of devaluation will improve the autonomous trade balance, and the improvement of the autonomous trade balance will increase a country's national income through the effect of the Keynesian multiplier. An increase in national income will lead to a corresponding increase in domestic spending. If the improvement in the independent trade balance caused by devaluation exceeds the increase in imports caused by the increase in national income, that is, the Robinson-Metzler condition is met, then the main impact of currency depreciation is still to improve the trade balance. On the other hand, depreciation usually causes the price of imported goods to rise and the price of exported goods to fall, leading to a deterioration in the terms of trade. If the proportion of national income spent on imports is high, the terms of trade will have a very important impact on spending. After the domestic currency depreciates, under the same nominal income level, consumers can only purchase fewer goods (including domestic goods and foreign goods), which leads to a decrease in real income. This will inevitably lead to a decline in spending in the depreciating country, thereby improving the trade balance. 3. The impact of price level changes caused by exchange rate changes on trade balance. In addition to affecting the relative prices of traded goods, exchange rate changes will also affect the general price level of the country, thereby affecting the trade balance. After currency depreciation, domestic price levels can be affected mainly through three channels. First, depreciation makes imports more expensive in domestic currency terms. The rise in the local currency price of imported goods will, on the one hand, directly affect the prices of imported raw materials and semi-finished products, thereby increasing the cost of domestic goods, such as the current energy prices; on the other hand, the rise in the price of imported consumer goods will inevitably push up the domestic wage level, indirectly affecting domestic cost of goods. These two aspects simultaneously lead to an increase in the country's domestic price level. Secondly, if depreciation promotes the improvement of trade balance in the short term, it will cause the depreciation country's export demand to increase, thereby increasing aggregate demand. Under full employment conditions, when exports are greater than imports, it means that the country's total income level is greater than the products and services that supply domestic demand. Under these conditions, domestic inflation will occur due to insufficient supply of domestic products due to excessive exports. This situation is particularly exacerbated in a shortage economy. On the contrary, when domestic demand is insufficient, exports will alleviate deflationary pressure and promote economic development. If a country has not yet achieved full employment, economic growth will only increase resource utilization and bring it closer to full employment. Thirdly, if a trade balance surplus occurs after devaluation, foreign exchange reserves will increase. The increase in foreign exchange reserves will increase the amount of base currency injected by the central bank through the purchase of foreign exchange. In fact, when international reserves increase, it is likely to cause domestic prices to rise. Rising domestic prices have an impact on the trade balance in two ways. First, with the nominal money supply unchanged, rising prices cause the real cash balances held by the public to decline. In order to restore the real cash balance to the level they are willing to hold, the public will sell securities on the one hand, which will increase market interest rates and reduce investment; on the other hand, it will reduce consumer spending, and the result of these two effects is a decline in total domestic expenditure. This will inevitably affect changes in the trade balance. Second, if the domestic price increase exceeds the depreciation of the nominal exchange rate of the domestic currency, and assuming that the foreign price level remains unchanged, the nominal depreciation will not cause actual depreciation of the currency, but will lead to an increase in the real exchange rate, which will ultimately worsen the trade balance. 4. Expenditure changes caused by exchange rate changes have an impact on trade balance. Exchange rate changes can affect trade balance by affecting expenditure changes.

There are two forms of expenditure changes, one is expenditure transfers that represent structural changes, and the other is expenditure changes that represent quantitative changes. The impact of exchange rate changes on the trade balance is accomplished simultaneously through expenditure transfers and expenditure changes. Changes in the exchange rate will cause changes in the relative prices of goods between the two countries. When the local currency depreciates, the foreign currency price of the country's exported goods will decrease, while the local currency price of the country's imported goods will increase, so domestic goods become cheaper relative to foreign goods. Such depreciation would shift domestic and foreign spending from foreign goods to domestic goods. Whether the expenditure transfer can be realized and whether its effect is significant depends on the elasticity of supply and demand of domestic and foreign goods. When supply and demand are highly elastic, changes in the exchange rate can change the trade balance by affecting expenditure transfers. The impact of exchange rate changes on the trade balance is not only achieved by affecting expenditure transfers, but also by changing the scale of expenditures. If the local currency depreciates, the country's exports will increase, its imports will decrease, and the trade balance will improve. However, as the country's exports of goods increase, the country's national income will increase, thus the country's expenditure scale will expand, which will lead to an increase in imports, so the degree of improvement in the trade balance will decrease. This is the principle that exchange rate changes affect the trade balance through changes in the amount of expenditure. If the pass-through effect is considered, then after the depreciation of the local currency, the national income of the country increases, the scale of the country's expenditure expands, thereby increasing the national income of foreign countries, which in turn increases the demand for domestic products, thereby expanding the export of domestic products. In this way, the impact of exchange rate changes on the trade balance is more complex. 2. The positive impact of RMB appreciation on my country’s import and export trade 1. RMB appreciation helps reduce trade frictions. For a long time, our country has mainly relied on the expansion of the quantity of labor-intensive products to implement its export-oriented strategy, and relied on price advantages to occupy the international labor-intensive industries. The middle and low-end market of the industry. Faced with such a high market share, trade conflicts between China and other countries will inevitably increase. 2. RMB appreciation can bring about improvement in terms of trade. RMB appreciation will lower the prices of imported products, especially the prices of raw materials and high-tech equipment. Enterprises will accelerate the introduction of technology, improve production efficiency, and achieve dynamic comparative upgrading of products. At the same time, since most of the imported products are used for re-export, as the productivity of enterprises increases, the quality of export products improves, which helps Chinese enterprises extend from the low end of the product industry chain to the mid-to-high end, improving trade conditions. 3. RMB appreciation will promote the optimization and upgrading of trade structure. Through the means of RMB appreciation, those manufacturing industries with low technical content, low added value, and poor management can be effectively squeezed out. This is in line with the development direction of China's industrial structure transformation. At the same time, the appreciation of the RMB will cause more intense competition in the industry, encourage enterprises to enhance their competitiveness through technological management innovation, make those innovative and competitive manufacturing giants stronger, and reduce the number of inefficient enterprises. Vicious overseas competition can also speed up the pace of companies' "going out". 3. Possible negative effects of RMB appreciation through import and export 1. Changes in the commodity structure caused by RMB appreciation will affect the interests of some regions and residents. The export growth of resource commodities, some bulk agricultural products and low value-added manufactured products will slow down. In the short term, the economic development of places with a high degree of resource dependence and a large proportion of agriculture in the central and western regions may have a certain adverse impact on the income of some farmers who mainly rely on agriculture and the employment of some low-skilled workers. 2. RMB appreciation may cause certain difficulties for the export of large complete sets of equipment. For some large complete sets of equipment, it takes 5-10 years from contract signing to delivery, and the payment time may be even longer. If the RMB continues to rise for a long time, it will be difficult for companies to predict the level of forward exchange rates, and financial institutions generally only provide foreign exchange hedging tools for about one year, so the exchange rate risks borne by companies and the cost of risk aversion will be greater. 3. If the RMB appreciates too fast and too sharply, it will cause a decline in exports and affect the steady growth of the national economy. If the RMB appreciates too fast and too much, its impact on import and export growth may not be so mild. First, it may cause the export growth rate to drop significantly, which will not only have a great impact on resource-based, low-priced and low-value-added commodities, but also the development of the entire export processing industry and employment; second, it may stimulate large-scale imports of some commodities, impacting The domestic market may even cause some deflation. 4. The trade imbalance with the United States and Europe will continue, but the growth of the surplus may slow down. Due to the existence of demand rigidity and structural complementarity, even if the exchange rate of the RMB against the currencies of the three major trading partners of the United States, Europe and Japan appreciates by more than 5% , my country's large trade surplus with the United States and Europe and large trade deficit with Japan, South Korea and other countries will still exist, but the growth rate of the surplus (deficit) will slow down. This will help alleviate disputes and frictions between my country and its major trading partners. 4. Countermeasures and Suggestions 1. Transform my country’s development strategy from an export-oriented one to a domestic demand-oriented one. As the most populous developing country in the world, it is very dangerous to rely solely on export-oriented development strategies. Excessive reliance on the international market will easily be impacted by foreign markets, which will affect the sustainable development of the economy. Policies to expand domestic demand can offset the possible decline in external demand after the appreciation of the renminbi. 2. Straighten out the interaction between exchange rates and terms of trade, improve trade conditions, and promote economic development.

Its focus is that in the short term, the moderate appreciation of the real effective exchange rate of the RMB will improve the deteriorating terms of trade, which will not only limit the growth of poverty caused by the increase in export volume, but will also have an impact on domestic factor costs and the structure of imports and exports. Influence. Countries or regions participating in economic globalization, especially large developing countries like my country, must coordinate the relationship between growth and development. They must not only give full play to their own comparative advantages, but also pay attention to the formation of dynamic comparative advantages, and pay more attention to improvement while growing in quantity. Quality and level. 3. Adjust the trade structure of my country’s import and export commodities and promote industrial upgrading. It can be seen from my country's trade commodity structure that the labor-intensive products exported by my country have low foreign demand elasticity and face fierce competition from developing countries, while the domestic demand elasticity of imported high-tech products and machinery and equipment is relatively high. This feature of trade structure is not conducive to the improvement of my country's foreign trade. We must strive to increase the proportion of manufactured products in export commodities and improve the supply elasticity of export products. At the same time, we must also pay attention to technology introduction and product research and development, focus on quality, create brand effects, improve the technical content of export commodities, and reduce the number of high-tech products such as Optics, medical care, precision instruments and equipment, etc. are dependent on foreign countries. We should reduce the adverse impact of RMB appreciation on my country's trade through efforts in both import and export. 4. Vigorously develop various forms of foreign trade. We must accelerate the implementation of the going global strategy, establish an overseas investment insurance system and a risk warning mechanism, encourage capable enterprises to invest abroad, and increase energy- and resource-oriented overseas investment. This can not only enhance the operating capabilities of our country's enterprises, but also circumvent trade barriers, reduce trade frictions, expand exports, and at the same time meet the energy and raw material needs of our country's energy- and raw material-dependent enterprises.