Effects of China’s Currency Appreciation

Introduction US policy makers are demanding China to freely change their own currency. Critics point out that China's policy of making it impossible to evaluate and evaluate exchange rates gives manufacturers excessive benefits. These two items are sold domestically, but Chinese manufacturers are exporting relatively inexpensive merchandises from manufacturers in under-economic countries in the United States, especially the United States. This aspect is accused mainly of affecting the huge annual trade deficit in the United States.

Influence of underestimation of the Chinese currency on automobile manufacturers in the US As shown in Figure 4, the Chinese government acknowledged a certain rise in the currency, but the Chinese currency reserves in the past few years and China's enormous trade surplus The rapid increase strongly suggests that China's currency is underestimated by as much as 40%. . The underestimation of the renminbi has a positive and negative impact on American producers. From the perspective of a US automobile exporter, the impact of the underestimation of the renminbi is doubled. In China, exports of the US become more expensive, but manufacturers relying on overseas auto parts are facing higher manufacturing costs than manufacturers using local parts of China. Manufacturers that choose to manufacture in China are somewhat unaffected by this adverse effect, but they have another problem.

For the United States, the impact of the shift to China's gold standard currency will be even more serious. China accounts for about half of the worldwide manufacturing industry and effectively manages the world's rare earth market Marketed products in these markets are an important part of electronic products, especially military electronics. China also manufactures 70% of the world's mobile phones, 60% of the world's shoes, and most of the world's apparel. This dominant position in the manufacturing industry means that China has the ability to determine the global terms of trade that other countries can not truly compare.

In this paper, we simulated the US dollar as the world currency in the framework of the world DSGE and investigated the influence of the money supply shock of the United States on the Chinese economy. I investigated exchange rate targets and capital management in the context of dollar hegemony. Given the tight supply of the United States, China's inflation rate and real GDP will be below the steady state level in the medium term; for the United States there is no inflationary pressure. There is a ripple effect of liquidity effect. Transmission mechanisms are described using cost-driven and relative pricing effects. Impact of US money supply, full liberalization reform without capital regulation, floating exchange rate of the RMB is not the best reform in China.