This paper examines the current situation of the US-China current account imbalances and the development of trade disputes. This paper also empirically analyzes the short and long-term causal relationship between current account imbalances and real exchange rates and the relationship between the current account persistence and exchange rate regime.
  In Chapter two, we study the current account imbalance between China and the U.S. in terms of trade structure. We find that China’s trade surplus with the U.S. is concentrated in a few specific items, including cell phones, automatic data processing machine and monitors and projectors. Looking at the processing stage of the trade between China and the US, China’s trade surplus with the U.S. has mostly come from the final goods. In particular, the surplus in capital goods trade has begun to surpass the surplus in consumer goods trade, in 2016. We also find that the surplus in high-technology manufacture exceeds that in low-technology manufacture. Meanwhile, China has run a deficit in the service trade with the U.S. and the deficit has surged since the global financial crisis.
  In Chapter three, we examine the development process of the dispute over the yuan exchange rate and the trade disputes after the Trump administration. Analyzing the existing research results on the misalignment of RMB exchange rate, we find that it is difficult to make a consistent conclusion according to the methodology and analysis period. However, the U.S. Treasury Department maintains its position that the RBM should be appreciated to resolve the trade imbalance. After the launch of the Trump Administration, the government is taking hard-line trade sanctions in addition to exchange rate pressures. In 2017, the Trump Administration increased the number of anti-dumping and countervailing duty investigations for import goods from China by 59% year-on-year, and the US Department of Commerce, for the first time in 26 years, exercised anti-dumping and countervailing duties investigation on Chinese aluminum alloy sheets. In addition, it is considering imposing tariffs based on Articles 201, 232 and 301. In response to these U.S. sanctions, China expressed its strong condemnation through government statements and countered in the same way as the United States.
  In Chapter four, we examined the relationship between the current account balance and the exchange rate in two ways. First, we analyzed whether the RBM exchange rates is a significant factor in determining the current account balance between China and the U.S.. In the long term, China’s US current account is affected not only by the real exchange rate but also by the difference in the real GDP growth rate, the difference in the financial account balance of two countries, the financial deeping of China. In the short term, only changes in trade openness have a significant positive effect on the current account. The change of the real exchange rate does not seem to lead to the short-term adjustment of the current account. Second, we study the relationship between the persistence of the current account and the Chinese exchange rate regime. The results implies that current account imbalance between the two countries is adjusted faster after the global financial crisis and China’s exchange rate system reforms contributed to current account adjustment.
  The empirical results provide that the RMB exchange rate only affects trade balance between China and U.S. in the long term, and China seems to contribute to the adjustment of trade imbalance through the exchange rate system reform. However, considering the global value chain of China and emerging Asian economies, it is unclear whether the RMB exchange rate adjustment alone will resolve the trade imbalance. Instead, structural rebalancing such as the U.S. fiscal deficit reduction, the increase of private savings, and the development of financial market in China can fundamentally solve current account imbalance. Although the Trump Administration has not yet designated as a currency manipulator, the U.S. government still suspects the foreign exchange market intervention and the undervaluation of the RMB. It is possible that the pressure of the U.S. on RMB appreciation would direct at KRW exchange rate. On the other hand, considering the dependence of intermediate goods trade between China and Korea, deepening trade disputes between China and the U.S. may cause China to shrink its exports to the U.S., resulting in a slowdown in Korea’s intermediate exports to China. In addition, with the spread of protectionism, there will be a possibility of trade disputes including the subsidy problem between Korea and China due to Korea’s continuous surplus with China.