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How Would an Appreciation of the Renminbi Affect the U.S. Trade Deficit with China?

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Author Info

  • Thorbecke Willem

    ()
    (George Mason University and Research Institute of Economy, Trade and Industry)

Abstract

The U.S. trade deficit with China exceeded $200 billion in 2005. Many blame these imbalances on the value of the renminbi. This paper investigates how an appreciation of the RMB would affect the U.S. trade balance with China. Johansen MLE and dynamic OLS results indicate that the long run real exchange rate coefficients for nominal exports and imports between China and the U.S. equal approximately unity, implying that the true price elasticities of demand are higher. In addition, many believe that a Chinese revaluation will lead to a generalized appreciation of Asian currencies that could substantially impact China's processed exports. Thus an appreciation of the renminbi would help to rebalance trade between China and the U.S.

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File URL: http://www.degruyter.com/view/j/bejm.2007.6.3/bejm.2007.6.3.1454/bejm.2007.6.3.1454.xml?format=INT
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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 6 (2006)
Issue (Month): 3 (December)
Pages: 1-17

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Handle: RePEc:bpj:bejmac:v:topics.6:y:2006:i:3:n:3

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Web page: http://www.degruyter.com

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Cited by:
  1. Miaojie Yu, 2010. "Does Appreciation of the RMB Decrease Imports to the U.S. from China?," Trade Working Papers 22040, East Asian Bureau of Economic Research.
  2. Robin Pope, 2009. "Beggar-Thy-Neighbour Exchange Rate Regime Misadvice from Misapplications of Mundell (1961 ) and the Remedy," The World Economy, Wiley Blackwell, vol. 32(2), pages 326-350, 02.
  3. THORBECKE, Willem & Hanjiang ZHANG, 2008. "The Effect of Exchange Rate Changes on China's Labor-Intensive Manufacturing Exports," Discussion papers 08038, Research Institute of Economy, Trade and Industry (RIETI).
  4. Yin-Wong Cheung & Menzie D. Chinn & XingWang Qian, 2012. "Are Chinese Trade Flows Different?," NBER Working Papers 17875, National Bureau of Economic Research, Inc.
  5. Rahman, Mizanur, 2008. "The Impact of a Common Currency on East Asian Production Networks and China’s Exports Behavior," MPRA Paper 13931, University Library of Munich, Germany.
  6. Mizanur RAHMAN & Willem THORBECKE, 2007. "How Would China's Exports be Affected by a Unilateral Appreciation of the RMB and a Joint Appreciation of Countries Supplying Intermediate Imports?," Discussion papers 07012, Research Institute of Economy, Trade and Industry (RIETI).
  7. Dong Yan & Whalley John, 2011. "Model Structure and the Combined Welfare and Trade Effects of China's Trade Related Policies," Global Economy Journal, De Gruyter, vol. 10(4), pages 1-21, January.
  8. Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2009. "China's Current Account and Exchange Rate," NBER Working Papers 14673, National Bureau of Economic Research, Inc.
  9. Chiu, Yi-Bin & Lee, Chien-Chiang & Sun, Chia-Hung, 2010. "The U.S. trade imbalance and real exchange rate: An application of the heterogeneous panel cointegration method," Economic Modelling, Elsevier, vol. 27(3), pages 705-716, May.
  10. THORBECKE, Willem, 2009. "Can East Asia be an Engine of Growth for the World Economy?," Discussion papers 09006, Research Institute of Economy, Trade and Industry (RIETI).
  11. Yu, Miaojie, 2009. "Revaluation of the Chinese Yuan and triad trade: A gravity assessment," Journal of Asian Economics, Elsevier, vol. 20(6), pages 655-668, November.

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