China’s decision made over the weekend to allow its currency to appreciate will reduce U.S. imports to the country, increase U.S. exports and overall be a positive development for the American economy in the next five years, according to Jeffrey H. Bergstrand, finance professor and international trade expert at the University of Notre Dame.
“China’s refusal to allow the renminbi to rise in value during its phenomenal economic growth in the past decade has put America and other exporting countries at a competitive disadvantage,” says Bergstand. “The lower value made China’s consumer goods cheaper than those produced elsewhere, which might have benefited American shoppers. But overall, it hurts world trade because the largest consumer market in the world can’t afford to buy imported goods.”
The renminbi, also known as the yuan, is China’s basic unit of currency. Economists, officials and the World Bank have charged that China has kept its value artificially low in order to make its exported goods more affordable.
Over the June 19-20 weekend, China indicated that it would allow a gradual rise in the renminbi, which experts have estimated is under value by as much as 40 percent compared to the dollar. By the close of business in Asia, the renminbi had advanced 0.42 percent to 6.7976 per dollar, the largest one-day gain in five years.
Jeffrey H. Bergstrand has been a finance professor at Notre Dame’s Mendoza College of Business for more than 20 years, as well as a fellow of Notre Dame’s Kellogg Institute for International Studies, and a research associate of CESifo, an international network of researchers based in Europe. His research on international trade flows, free trade agreements, foreign direct investment, multinational firms, and exchange rates has been published in more than 50 articles in such journals as the American Economic Review and as chapters in books.
Bergstrand’s article about whether free-trade agreements impact trade flows was recently recognized as one of the top 20 most-cited research papers published in the Journal of International Economics 2005-2009.
For more information, contact Jeffrey Bergstrand at (574) 631-6761 or Bergstrand.firstname.lastname@example.org.