China's exchange rate policy is often invoked to explain the widening of the us trade deficit. Nevertheless, if prices (and hence the exchange rate) do indeed play a role in Chinese competitiveness, the impact expected from a possible rise in the yuan* should not be over-estimated. First, China's competitiveness stems mainly from structural factors. Next, China's share in us trade remains relatively small. However, an appreciation of the yuan could be followed by an appreciation of all Asian currencies, which would then obviously have a greater impact on the American trade balance. The present caution of the Chinese authorities may be explained by fears about an appreciation worsening the distribution of resources and weakening local industry.
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Article provided by CEPII research center in its journal La Lettre du CEPII.
Find related papers by JEL classification: F31 - International Economics - - International Finance - - - Foreign Exchange E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
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