RMB revaluation impacts little US trade deficit
(Xinhua)
Updated: 2005-06-03 14:27

An Asian Development Bank (ADB) research paper published on Thursday said a revaluation of the renminbi of China would have little impact on US trade deficit.

ADB made the statement on the basis of a research paper done by ADB economist Cyn-Young Park, "Coping with Global Imbalances and Asian Currencies."

The paper is part of the Policy Brief Series produced by ADB's Economics and Research Department, designed to provide concise non-technical accounts of major policy issues.

Macroeconomic simulations conducted by Park show that a projected 10 percent revaluation of the renminbi would only improve the US trade balance by US$3.6 billion, a mere 0.02 percent change in the current account as a percent of gross domestic product (GDP).

Even with a 20 percent revaluation, the situation changes little, contributing only to a 0.05 percent reduction in the current account deficit, she said.

Park argues that despite China's significant trade surplus with the US, imports from China account for a relatively small share of total US imports, and exports to China constitute an even smaller share of total US exports.

Also, for the US trade balance, reduced imports from China would likely be offset by increased imports from other Asian countries, she said.

Moreover, the negative income effect of a revaluation on the Chinese currency would curb its import demand, thus making it unlikely that US exports dramatically increase following a renminbi revaluation, said the paper.

Close