What a revaluation of the renminbi could achieve

American political pressure on China to revalue the renminbi against the dollar presupposes that an appreciation of the Chinese currency will reduce the US trade deficit. This supposition is rarely questioned. It seems inescapable that a higher dollar price of the renminbi will make American goods more competitive in global markets and thereby help restore trade balance. One problem with this argument is that things do not work out that way in a baseline model of international adjustment, the