Review and Evaluation of the Traditional Theory of Trade Balance and Exchange Rate and the Causes of the U.S. Trade Deficit

In view of the pressure arising from the appreciation of the RMB exchange rate demanded by the U.S. and other countries, this paper points out the drawbacks in the of analysis of trade balance by the exchange rate tools, and finds out that exchange rate is not the main cause of trade deficit. Bu using the multi-factor structure, this paper analyzes the related factors of the U.S. trade deficit and changes of the RMB exchange rate, stressing that the U.S. overestimates the trade deficit with China. Finally, it briefly discusses some strategic measures for improving the China's trade imbalance.