This paper examines the extent to which changes in imports or exports of US consumer goods and services occurs in response to a change in the exchange rate, 1960-2000. The data used are taken from the Economic Report of the President, 2002. The findings indicate that an increase in the trade weighted exchange rate of about 1% is associated with an increase in import of consumer goods of approximately $1 bn the year after the change. The same level increase seems associated with a decline in consumer goods export of about $0.75 bn.
For years now, American experts have been debating whether the Chinese exchange rate is kept artificially high, thereby making it possible for Americans to buy many Chinese yuan for each dollar that they are willing to spend. This makes foreign goods seem cheap compared to American counterparts. Similarly, the more yuan it takes to buy a dollar, the less American goods (exports) the Chinese are able to buy.It is argued that if the Chinese lower their managed exchange rate to some `reasonable', but usually undefined, level, trade would again be fair and trade imbalance between the two countries would disappear. Similar arguments are made regarding the exchange rates of other American trading partners, like Japan.
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