If the United States is running a deficit trade balance with China, then in a free market we would expect the value of the Chinese yuan to depreciate against the U.S.dollar.

Question

Quizplus · Accepted Answer

In a situation where the United States is running a trade deficit with China, it means the US is importing more from China than it is exporting to China. This would typically lead to a higher demand for Chinese yuan (to pay for the imports) and a lower demand for the US dollar (since China needs fewer dollars to buy US goods). As a result, we would expect the value of the Chinese yuan to appreciate, not depreciate, against the US dollar in a free market scenario.

If the United States Is Running a Deficit Trade Balance