The US-China Trade Imbalance: Will Revaluing the RMB Help (Much)?

The large US-China trade imbalance is a common cause for concern and regularly blamed on the undervaluation of the RMB. We estimate a simple model of the trade balance and simulate the long-run effects on the trade balance of RMB revaluations in the range of 10-50%. We find that improvements in the trade balance following plausible revaluations are likely to be modest.