In an article reporting on China's refusal to raise the value of the yuan the NYT reports that "some trade experts say that even if Beijing did allow a sharp increase in the value of the yuan, there is no guarantee that this would lead to an immediate change in the trade balance." A rise in the value of the yuan would lead to an increase in the price of Chinese imports in Europe and the United States. It would reduce the price of imports from Europe and the United States in China. Virtually all economists believe that demand does respond to changes in prices, which means that a rise in the yuan would reduce China's exports and raise its imports. It would have been helpful if the article had identified the "trade experts" who do not believe that prices affect demand. They are a certainly a small minority among economists. btw, Floyd Norris had an excellent piece that included a chart showing the sharp drop in China's imports from Europe coinciding with the soaring value of the euro relative to the yuan.
--Dean Baker
