Given the generic consensus at the G7, US Congress, Rest of the World barring for
1. The econometric evidence on the contributions exchange rates make on competitiveness, productivity investments and thus, trade surplus in
2. One estimate is that the Yuan is undervalued anywhere from 0-50%! Assuming it is 50%, and all other costs remain constant, a 50% revaluation (entirely unlike) will affect varying sectors of the economy differently. So, prices observed in the imports will change according to the demand elasticity for given price change. So, in the countries that import low-complexity Chinese commodities -- pencils, mousepads etc., -- there will be a substitution effect in display.
3. Standard trade theory predicts that as Yuan is revalued, the level and growth rate of the Chinese exports should decline. However, it is important to note that most international trade contracts are 6-12 months set in advance. So a container of toothpaste to be delivered at
4. What a Yuan revaluation does to non-USD currency majors – is very much contingent on the competition for products in domestic markets and in third-party markets.
5. The supply change management in place for goods to and from
6. All of the above assumes the Chinese will continue to produce as always. Then the improvements in the Yuan will provide the results
7. The most understudied aspect is that when the Chinese exports decline (and thus their income declines) – the effect on goods imported to
Now what? When revaluation happens, for a short while the USD will rise, Euro will fall against the USD and the Yen will rise as well (if the USDJPY tracking of 6M USDCNY forwards are to be trusted!).
But, in the intermediate term after the revaluation we will be back here -- singing the same tune.