Implications of the yuan-dollar exchange rate and commodity trade between China, the United States, and competitors

hilland, amy;

Due to an increased US bilateral trade deficit with China, the trade tension between the United States and China has been of major concern for the last two decades. The United States has experienced a decline in exports to China, while its imports from China have increased, expanding the already alarming trade deficit. Although there are many factors that account for this trade deficit, an undervalued Chinese currency (Yuan) against the dollar has been viewed as one of the leading factors. The United States� concern over the value of the Yuan has grown in the last two decades. The undervalued Yuan negatively affects the United States as it makes it more expensive to export to China and less expensive to import from China. But the Yuan is not undervalued against the currencies of US
export competitors, nor is the Yuan undervalued against the currencies of Chinese export competitors. This gives US competitors an advantage over the United States in exporting to China and gives China the advantage over its competitors in exporting to the US market. Since the United States exports (imports) less (more) to (from) China, US producers are adversely affected, and the trade deficit with China worsens.