Quel impact pour une réévaluation du RMB sur le déficit de commerce extérieur des Etats-Unis?

Otto Kölbl

The US administration frequently accuses China of causing global trade imbalances and of increasing the US trade deficit because it keeps the exchange rate of the RMB (Renminbi, the Chinese currency) artificially low. However, a close examination of the foreign trade data provided by the WTO reveals that even in the best case, a revaluation of the RMB can have only an extremely marginal effect on the US foreign trade balance.

The idea behind the US demand is that a revaluation of the RMB would make US products more competitive on the Chinese market and Chinese products less competitive on the US market. The US companies would sell more to China and US consumers would buy less from China, thereby reducing the US foreign trade deficit.

Nobody can calculate exactly up to what exchange rate with the US dollar the RMB would have to rise in order to achieve this goal, but a few hypotheses will allow us to propose an estimate of the possible influence of a RMB revaluation on the US trade deficit:

1. China can not afford a global foreign trade deficit. Even if the value of the RMB were entirely determined by the market, its value would automatically drop as soon as its foreign trade balance turned negative. Therefore the Chinese global trade balance will in the best of cases be balanced.
2. A change in the value of the RMB can influence the relative competitiveness of US versus Chinese goods, but it can not make US goods more competitive on the Chinese market with regards to its other foreign competitors like the EU or Japan.
3. China's foreign trade has been on a continuous rise in the last three decades. A revaluation of the RMB could change the ration between exports and imports, but it would not cause a decrease of Chinese foreign trade as a whole. On the contrary, it is highly probable that the Chinese foreign trade will continue to rise in the future.

The following tables represent key figures relating to the foreign trade of the EU (excluding intra-27 trade), the US, Japan and China. The first table shows the figures for 2008, where all the necessary figures are available:

Table 1: Foreign trade figures EU, US and Japan with China 2008

The second table shows the figures for 2009, where the details for origin and destination of the trade in services are not available yet. These figures have been extrapolated from the 2008 data, hypothesizing the same repartition for each country with a global adjustment according to the total services trade, a figure which is known for 2009. Since the trade in services is only a minor part of global trade, this approximation has got no great influence on the final result.

Table 2: Foreign trade figures EU, US and Japan with China 2009 (trade in services details extrapolated)

The first part of each table shows the global foreign trade. The first thing which sticks out is the huge US trade deficit: 729 billion USD in 2008, much larger than the EU figure of 250 billion, Japan having even a tiny trade surplus. For both the US and the EU, the deficit shrunk in a spectacular way between 2008 and 2009: the economic crisis helped reducing imports because of its effect on consumer demand. It decreased from 729 billion to 406 million for the US, from 250 to only 36 billion for the EU. The Chinese trade surplus shrank too, from 284 to 167 billion USD.

The second part shows the bilateral trade with China. Whereas all three economic entities have got imports from China more or less proportional to their respective GDP, their ability to sell to China differs greatly. Whereas Japan has got a balanced trade with China, Europe imports three times as much from China than it exports; in the case of the US the ration is more than four to one, even five to one in 2008. This shows that even a high-tech high-salary country like Japan can have a balanced trade with China.

The third part shows the hypothetical trade with China if the RMB had been revaluated so as to reduce the Chinese foreign trade surplus to zero. Since a reduction in Chinese foreign trade is improbable, the exports have been kept the same, the imports have been increased proportionally in order to make the sum of all imports equal to the exports.

Since the US exports volume to China is far behind the volume of the EU or Japan, its benefit would be relatively small. The "diff." column shows the difference between this hypothetical scenario and reality. Whereas Japan would increase its foreign trade surplus with China by 34 billion USD (2008) resp. 17 billion (2009), the corresponding figures for the EU would be 31 resp. 20 billion, for the US only 19 resp. 12 billion USD. This would reduce the US global trade deficit by 2.6% (2008) resp. 3.0% (2009).

Since not everybody will be convinced that a revaluation of the RMB would not cause a drop in the Chinese foreign trade, a second case ("case 2") was examined: what happens if the Chinese exports decrease to the levels of the imports? In this case, the US foreign trade deficit would apparently drop by 9.1% (2008) resp. 9.9% (2009). However, the actual drop would certainly be much smaller.

If the US can export more to China (case 1), US exports to other countries would not be reduced. On the contrary, if Chinese products become less competitive (case 2), they would probably not be replaced by US products, but by imports from other low salary countries. More important, the US economy would not be stimulated at all by an increase in exports to China. Therefore, the consequences of this scenario are not easy to evaluate, but they would probably be even less beneficial to the US economy.

The revaluation of the RMB would therefore have only an extremely small effect on the US foreign trade as a whole. Moreover, if China had no more foreign trade surplus, she could not lend huge sums of money to the US at low interest rates. Globally, the effect on the US economy would therefore be negative or even disastrous.

The problem of the US economy is not that it is not able to compete with goods made in China; these two countries play in a completely different league each. The problem is that on the Chinese market (and also elsewhere), the US are unable to compete with the products of other highly industrialized economies like Japan and the EU. However, this is not something which a US president loves to tell the voters who elected him; it is much more convenient to use China as a scapegoat for the internal problems of the US economy.