The effects of the Yuan-dollar exchange rate on agricultural commodity trade between the United States, China, and their competitors

The United States claims that the undervaluation of Chinese currency, the Yuan, causes U.S. exports to China to decrease and imports from China to increase. Furthermore, because the Yuan is undervalued only against the dollar, U.S. competitors have an advantage in exporting to China and China has an advantage over its competitors in exporting to the United States. This study develops a theoretical model to analyze the effect of the Yuan undervaluation on prices, supply, demand, and trade in the United States, China, and their competitors. This study applies a cointegration/error-correction model to empirically quantify the short-run and long-run effects of the devaluation of the Yuan on important agricultural commodities traded between the United States, China, and their competitors. These commodities include Chinese imports of milk, soybeans, and cotton from the United States and U.S. imports of beans, fruit juice, and fruit from China. The results show that Yuan devaluation causes Chinese imports of U.S. milk, soybeans, and cotton to decline and U.S. imports of beans, fruit juice, and fruit from China to increase in the short run and in the long run.