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Home Publications Blogs Beat the Press Looks Like Lowering the Value of the Dollar Does Reduce the Trade Deficit With China

Looks Like Lowering the Value of the Dollar Does Reduce the Trade Deficit With China

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Monday, 31 January 2011 05:28

The NYT reports on how rising prices and wages in China are dampening demand for its exports. The article presents rising prices in China as an alternative mechanism to a revaluation of the yuan (devaluation of the dollar) for reducing the U.S. trade deficit with China.

While the assessment in the article is largely anecdotal, if it is correct then its suggest that those who advocated a higher yuan as a cure to the trade deficit were correct. The NYT and other media outlets had generally presented this as a debatable point. It would have been worth noting that those who argued that trade would not respond significantly to changes in relative prices appear to be wrong.
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written by izzatzo, January 31, 2011 8:33
It would have been worth noting that those who argued that trade would not respond significantly to changes in relative pricesdownward sloping demand curves faced by Walmartian importers of communist competition that holds American debt hostage are not part of free trade and free marketsappear to be wrong.
the debate was rents in china, methinks
written by pete, January 31, 2011 3:51
I.e., if the yuan rose, and China squeezed even more productivity out of its workers, then they could keep export prices low. Similary, if Thailand, Malaysia, Cambodia, Vietnam, and someday Africa, can pick up the slack, then there is a long ways to go before the export of capital, import of goods, changes.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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