Yuan Appreciation: Discuss the effect of the Yuan appreciation on the US trade deficit with China.

China / U.S. Foreign Exchange Rate (Chinese Yuan to One U.S. Dollar): https://mym.cdn.laureate-media.com/2dett4d/MIA/ECO/0690/CH/images/graph4.png

Source: Board of Governors of the Federal Reserve System (US).

Choose oneanswerbelow:

A) In spite of the yuan appreciation our trade deficits with China keep growing. First, our exports will grow in dollars, but since our exports are relatively small the effect will be minor. Second, our imports have grown in dollars. This seems due to the fact that the price has gone up and our demand is fairly elastic.

B) In spite of the yuan appreciation our trade deficits with China keep growing. First, our exports will grow in dollars, but since our exports are relatively small the effect will be minor. Second, our imports have grown in dollars. This seems due to the fact that the price has gone up and our demand is fairly inelastic.