1.Using the J Curve effect to evaluate the impact of a revaluation of Chinese Yuan (or a depreciation of US dollar relative yuan) on the US-China trade balances. Please note that US trade balances are calculated in dollars and US has a trade deficit with China.

A.Short-run effect: US-China Trade Balances during Currency Contract period (both price and quantity are already contracted by buyers and sellers)

e.g. Timeline of transactions: Contract signed (t1)->Yuan Revaluation or dollar depreciation (t2) ->Payments Due (t3) recorded in US exports and imports

B.Pass-through Period: In this period, firms and individual can renegotiate the contracts of exports and imports, but they still can not find alternative buyers or sellers for their products.