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We use the error component two‐stage least squares estimation method to examine the effects of the Sino‐U.S. exchange rate and the weighted exchange rate between the United States and other Asian countries on the Sino‐U.S. trade patterns. Our study suggests that both the exchange rates have contributed to China's increased trade surplus with the United States. China has imported intermediate goods from the Asian countries, produced final goods using its cheap labor, and exported those goods to the United States. This is especially true for bilateral trade of high‐tech manufacturing goods. Our study also reveals that the U.S. bilateral trade balance could improve if China appreciates its currency (Yuan) against the U.S. dollar. (JEL F14, F10, F19)

This study empirically estimates and evaluates the economic benefits of the U.S. and Canadian Free Trade Agreement (FTA). Most past studies rely on aggregate data. The analysis here emphasizes the trade effects of removing tariff and nontariff barriers on each commodity group classified by the Standard International Trade Classification. Estimating the amount of trade expansion under FTA for both countries involves using the import demand elasticities from a dynamic demand model. Results show that U.S. imports from Canada are more sensitive to domestic, import, and world prices than are Canadian imports from the United States. U.S. imports from Canada would increase roughly £3.257 billion compared to the £2.432 billion increase for Canadian imports from the United States.