Rapid growth in imports of merchandise from the Peoples Republic of China over the past decade has posed a challenge for competing U.S. manufacturers. Some observers believe that the Chinese government has contributed to growth in U.S. imports by maintaining an undervalued currency, and there have been calls for China to revalue its currency, the renminbithat is, to raise its value (or allow it to rise) relative to the dollaras a way to level the playing field for U.S. manufacturers.
In a paper released today, CBO examines two important determinants of how appreciation of the renminbi against the dollar might affect competition in U.S. markets.
The first determinant is the portion of the value of Chinese exports that is produced in Chinathat is, the value of the exports minus the value of the imported inputs (such as parts and raw materials) used to produce them. That portion is often called the domestic value added, or the domestic content. A evaluation of the renminbi would affect the dollar price of only the domestic content of Chinas exports. It would not affect the portion of the exports value attributable to the cost of imported inputsoften called the foreign contentunless the countries that supply those inputs allowed their currencies to rise in value as well.
The second determinant is the degree to which Chinese exports to the United States compete with other countries exports rather than with the products of U.S. manufacturers. In general, a decline in U.S. imports from China would be offset to some extent by an increase (or more rapid growth) in imports from elsewhere.
In brief, CBO finds the following: