Renminbi Undervaluation, China's Surplus, and the US Trade Deficit
AbstractThe impact of China's exchange rate on both its current account balance and the US-China bilateral trade balance is considerable. A 1 percent rise in the real effective exchange rate would cause a reduction in China's current account surplus of 0.30 to 0.45 percent of GDP. A 10 percent real effective appreciation would bring China's current account surplus down by roughly $170 billion to $250 billion annually with a corresponding improvement in the US current account balance ranging from $22 billion to $63 billion annually. William R. Cline also warns that the increasing trend for China's current account surplus, combined with the negative trend for the US deficit, indicate that adjustments accomplished through exchange rate correction at any one time will have a tendency to erode unless the renminbi successively appreciates by around 2 percent annually to reflect its rapid productivity growth. Special Chinese efforts to shift the economy away from external to domestic demand are important complements of exchange rate adjustment, without which the long-term trend toward a rising trade surplus could cause excess demand to grow and increase inflationary pressures on the economy.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Peterson Institute for International Economics in its series Policy Briefs with number PB10-20.
Date of creation: Aug 2010
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-19 (All new papers)
- NEP-CBA-2011-02-19 (Central Banking)
- NEP-CIS-2011-02-19 (Confederation of Independent States)
- NEP-OPM-2011-02-19 (Open Economy Macroeconomics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Saadaoui, Jamel, 2012.
"Déséquilibres globaux, taux de change d’équilibre et modélisation stock-flux cohérente
[Global Imbalances, Equilibrium Exchange Rates and Stock-Flow Consistent Modelling]," MPRA Paper 51332, University Library of Munich, Germany.
- Morris Goldstein, 2011. "Integrating Reform of Financial Regulation with Reform of the International Monetary System," Working Paper Series WP11-5, Peterson Institute for International Economics.
- Pedro BAÇÃO & António Portugal DUARTE & Mariana SIMÕES, 2013.
"The International Monetary System in Flux: Overview and Prospects,"
Chapters of Financial Aspects of Recent Trends in the Global Economy book,
in: Rajmund Mirdala (ed.), Financial Aspects of Recent Trends in the Global Economy, volume 1, chapter 10, pages 192-206
- Pedro Bação & António Portugal Durate & Mariana Simões, 2013. "The International Monetary System in Flux: Overview and Prospects," GEMF Working Papers 2013-07, GEMF - Faculdade de Economia, Universidade de Coimbra.
- Raphael Anton Auer, 2012.
"Exchange Rate Pass-Through, Domestic Competition, and Inflation: Evidence from the 2005/08 Revaluation of the Renminbi,"
2012-01, Swiss National Bank.
- Raphael Auer, 2011. "Exchange rate pass-through, domestic competition and inflation -- evidence from the 2005/08 revaluation of the Renminbi," Globalization and Monetary Policy Institute Working Paper 68, Federal Reserve Bank of Dallas.
- Raphael A. Auer, 2012. "Exchange Rate Pass-Through, Domestic Competition, and Inflation: Evidence from the 2005/08 Revaluation of the Renminbi," CESifo Working Paper Series 3759, CESifo Group Munich.
- Wolfgang Keller & Ben Li & Carol H. Shiue, 2010.
"China’s Foreign Trade: Perspectives From the Past 150 Years,"
NBER Working Papers
16550, National Bureau of Economic Research, Inc.
- Wolfgang Keller & Ben Li & Carol H. Shiue, 2011. "China’s Foreign Trade: Perspectives From the Past 150 Years," The World Economy, Wiley Blackwell, vol. 34(6), pages 853-892, 06.
- Keller, Wolfgang & Li, Ben & Shiue, Carol Hua, 2010. "China’s Foreign Trade: Perspectives From the Past 150 Years," CEPR Discussion Papers 8118, C.E.P.R. Discussion Papers.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peterson Institute webmaster).
If references are entirely missing, you can add them using this form.