China-U.S. Balance of Trade There is an ongoing debate between the United States and China regarding whether the Chinese yuan’s value should be revalued upward. The cost of labor in China is substantially lower than that in the United States. Would the U.S. balance-of-trade deficit in China be eliminated if the yuan was revalued upward by 20 percent? By 40 percent? By 80 percent? If the yuan was revalued to the extent that it substantially reduced the U.S. demand for Chinese products, would this change shift the U.S. demand toward the United States or toward other countries where wage rates are relatively low? In other words, would the correction of the U.S. balance-of-trade deficit have a major impact on U.S. productivity and jobs?

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 2, Problem 15QA
Textbook Problem

China-U.S. Balance of Trade There is an ongoing debate between the United States and China regarding whether the Chinese yuan’s value should be revalued upward. The cost of labor in China is substantially lower than that in the United States.

  1. Would the U.S. balance-of-trade deficit in China be eliminated if the yuan was revalued upward by 20 percent? By 40 percent? By 80 percent?
  2. If the yuan was revalued to the extent that it substantially reduced the U.S. demand for Chinese products, would this change shift the U.S. demand toward the United States or toward other countries where wage rates are relatively low? In other words, would the correction of the U.S. balance-of-trade deficit have a major impact on U.S. productivity and jobs?

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