Will Substantial Revaluation of Chinese Currency Be Helpful in Attenuating the United States’ Trade Deficit with China? New Evidence from the Dynamic Threshold Kink Model

Sabrine Ferjani, Sami Saafi and Ridha Nouira

The International Trade Journal, 2025, vol. 39, issue 4, 327-351

Abstract: This study explores the possible existence of threshold kink effects in the impact of the real dollar-renminbi exchange rate misalignment on the bilateral trade flows between the United States and China. Empirical results show a significant threshold effect, with differential effects of undervaluation and overvaluation. Specifically, our findings suggest that while an overvaluation of the Chinese currency over 2.83% will attenuate the United States’ trade deficit with China, an undervaluation greater than 4.04% will deepen it. This suggests that a revaluation of the renminbi against the dollar would be helpful in improving the United States trade balance with China.

Date: 2025
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DOI: 10.1080/08853908.2023.2236220

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