Most economic data are released with a lag, sometimes quite a substantial one. Since the advent of regularly scheduled releases of economic data in the 1930s, a key challenge for economists has been to identify indicators that provide timely information about the release before it comes out—effectively, that “now-cast” its content.
The United States buys much more from China than it sells to China—an imbalance that accounts for almost half of our overall merchandise trade deficit. China’s policy of keeping its exchange rate low is often cited as a key driver of that country’s large overall trade surplus and of its bilateral surplus with the United States. The argument is that a stronger renminbi (the official currency of China) would help reduce that country’s trade imbalance with the United States by lowering the prices of U.S. goods relative to those made in China. In this post, we examine the thinking behind this view. We find that a stronger renminbi would have a relatively small near-term impact on the U.S. bilateral trade deficit with China and an even more modest impact on the overall U.S. deficit.