There is an ongoing debate between the U.S. 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 U.S.
a. Would the U.S. balance of trade deficit in China be eliminated if the yuan was revalued upward by 20%? Or by 40%? Or by 80%?
b. If the yuan was revalued to the extent that it substantially reduced the U.S. demand for Chinese products, would this shift the U.S. demand toward the U.S. 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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