Impacts on Appreciation of Rmb in the United States

First of all, the core impact on appreciation of RMB in the US is the imbalanced bilateral trade. As we all know, the bilateral trade nowadays between the US and China is deficit swelling. Having a look on the above table, you may see the total percentage change of bilateral trade between the US and China is declining year by year. In addition, the mainly different can be shown on the data of the amount of import and export. Then, we may know the impacts on appreciation of RMB on the US.

For import, as the appreciation of RMB, the price the price of goods and services that made in or provided by China is increasing. Then, it is common known that the amount of import will be declined since the demands of those products are decrease. And for export, the real value of US dollar will be raised correspondingly to the appreciation of RMB. That is really advantageous to the US. Let say, if there is appreciation of RMB, the price of goods and services of America is lower relatively. The amount of export from the US to China will then enhance seemingly. In the table below, we can see that China is the second top trading partner out of top 15 trading partners in the US for the month of February 2010. It implies that the value of goods and services that made in or provided by the US to the China will be raised when there is trading between the US and the China.

Abstracted from U.S. Census Bureau

Thus, the income or profit of bilateral trade of the US will then increase. It may lower the trading deficit of the US which showing from the below table. As a result, the appreciation of RMB will lead to facilitate the situation of imbalanced bilateral trade between the US and the China. Moreover, because the China more willing to appreciate the RMB step by step, it may lower the risk of having trade war between those countries so that to maintain their stable trading relationship.

Sources: US International Trade Commission, US Department of Commerce, and US Census Bureau

However, it that really can reduce the trade deficit of the US? Frances Kim (2009) stated that even though the undervalued RMB does negatively impact on the U.S. trade balance and, more importantly, the profits of American firms, these negative consequences are not that important in the case of a recession, because most of the underpriced Chinese goods would compete in markets already deteriorated by the recession. And because of the time in a recession, most of the goods and services purchased by consumers are of first necessity, such as food and electricity. Most of these goods and services are produced or provided by American firms, thus, even if the RMB is still relatively undervalued, people would not end up buying many underpriced Chinese goods since these usually correspond to goods of non-first necessity and consumers, who would