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The U.S.–China Trade Imbalance and the Theory of Free Trade: Debunking the Currency Manipulation Argument

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dc.contributor.authorShaikh, Anwar
dc.contributor.authorWeber, Isabella
dc.contributor.departmentThe New School for Social Research
dc.contributor.departmentUniversity of Massachusetts Amherst
dc.date2023-09-24T08:05:55.000
dc.date.accessioned2024-04-26T20:00:21Z
dc.date.available2024-04-26T20:00:21Z
dc.date.issued2020-03-01
dc.description.abstractThe U.S.-China trade imbalance is commonly attributed to a Chinese policy of currency manipulation. However, empirical studies failed to reach consensus on the RMB misalignment. We argue that this is not a consequence of poor measurement but of theory. At the most abstract level the conventional principle of comparative cost advantage suggests real exchange rates will adjust so as to balance trade. Therefore, the persistence of trade imbalances tends to be interpreted as arising from currency manipulation facilitated by foreign exchange interventions. By way of contrast, the absolute cost theory explains trade imbalances as the outcome of free trade among nations that have unequal real costs. We argue that a disparity in real costs is the root cause of the U.S.-China trade imbalance.
dc.identifier.doihttps://doi.org/10.7275/28046759
dc.identifier.urihttps://hdl.handle.net/20.500.14394/40079
dc.relation.urlhttps://scholarworks.umass.edu/cgi/viewcontent.cgi?article=1331&context=peri_workingpapers&unstamped=1
dc.rights.urihttp://creativecommons.org/licenses/by-nc-nd/4.0/
dc.source.issue505
dc.source.statuspublished
dc.subjectChina
dc.subjectfree trade
dc.subjectterms of trade
dc.subjectpurchasing power parity
dc.subjectexchange rate misalignment
dc.subjectEconomics
dc.titleThe U.S.–China Trade Imbalance and the Theory of Free Trade: Debunking the Currency Manipulation Argument
dc.typearticle
dc.typearticle
digcom.contributor.authorShaikh, Anwar
digcom.contributor.authorWeber, Isabella
digcom.identifierperi_workingpapers/271
digcom.identifier.contextkey28046759
digcom.identifier.submissionpathperi_workingpapers/271
dspace.entity.typePublication
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