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.

a. Would the U.S. balance of trade deficit in China be eliminated if the yuan was revalued upward by 20 percent?

Or by 40 percent? Or by 80 percent?

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 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?