In the past week, we've seen increased rhetoric from the United States about China's managed floating exchange rate. Many politicians seem to believe that letting the yuan rise significantly against the US dollar would solve the US trade deficit problem and result in more jobs for American workers. I think they significantly underestimate the damage such an appreciation would cause to the economy in terms of imported inflation and declines in standard of living for Americans.
Last week, the spokeswoman for the Chinese Foreign Ministry Jiang Yu said that yuan appreciation would not improve the US trade deficit and that the Sino-U.S. trade imbalance was a result of the international division of labor rather than exchange rate fluctuations.
Do you agree with her? What might this statement have to do with the J-Curve effect we learned about today?
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