There is an ongoing debate between the U.S. and China regarding whether the Chin
ID: 2820018 • Letter: T
Question
There is an ongoing debate between the U.S. 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 U.S.
a. Would the U.S. balance of trade deficit in China be eliminated if the yuan was revalued upward by 20%? Or by 40%? Or by 80%?
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 U.S. 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?
Explanation / Answer
Answer :- (a)
if there is a increase in the value of the currency of china that is yuan then can generally affect the balance of trade of US. When we analysis or judge these problems then there are various factors can=me into my mind which we need to consider Such as we say the US trade deficit is affected by the lower wages or salary in china. Because most of the companies of the US are then transferred to china due to low wages as low wages leads to decrease the value of the expenses of the company of they have a opportunity to pay low wages in china then why they paid more and the decrease in expenses is directly leads to increase in profit.
Answer (b) : - If there is a revaluation in the value of the currency of the China then it may leads to move the US firms to go to other countries like as we say India Japan Russia etc and all whic was benefitted from NAFTA if the US companies found the same product in ddifferent country which has a different or low labour price then their demand for chinese product gets reduced and they take from the countries with lower currency which leads to benefits to the US importers directly as pay less due to weak or low value currency.
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