Abstract

From the exchange rate, domestic absorption, and the relationship between direct investment and trade three angles, using annual data from the United States 1980-2004, obtained through a simple OLS method the U.S. import and export equations, can reveal the main reason affecting the U.S. trade deficit, and the U.S. dollar the impact of devaluation on the trade deficit, the results showed that: depreciation of the dollar impact on exports rather than imports, mainly through improved trade balance, but there is a lag period of 2 years, the depreciation of the dollar as of now, and no significant improvement in trade deficit; From the income effect, due to HM Revenue asymmetric effect exists, to reduce foreign trade deficit requires the United States is relatively more substantial consolidation; from direct investment and trade relations, U.S. foreign direct investment, transfer of their supply, increased U.S. imports. Large reductions in U.S. trade deficit can not simply rely on the U.S. dollar depreciation, but need long-term structural adjustment in 2006, the U.S. trade deficit will be further expanded. This paper tries to build a model to explain how exchange rate, domestic and external income, and direct foreign investment have influenced US 'import and export during 1980-2004. Based on OLS simulation of import and export equation, it displays the main causes of US's trade deficits and tries to explain why dollar's depreciation shows little impact on her deficit improvement. Our conclusion is: 1, Dollar's depreciation helps recovering trade balance only with 2-years delay by improving exports while having little effects on imports, so by now it can hardly reduce US 'trade deficits extensively. 2, From perspective of income, due to the HM Income Asymmetry Effects, much contraction is needed in domestic economy than that of abroad to reduce the deficits. 3, The increasing of FDI enlarges the trade deficits . According to our estimation, US 'trade deficits will expand in 2006. Without a long term structural adjustment, it is hard to expect reducing trade deficits significantly by dollar's depreciation alone