Question

A goverenment this past week imposed a 30% tariffs on Chinese solar panel imports. Assuming that this policy is extended to all imports from China, what will happen to the $/RMB exchange rate (all other things being equal)

Answer 1

According to the recent report by The International Trade Commission about 80% of the solar installations in the US are imported from asian countries out of which 8% is from china. China is a export oriented economy, majority of the electronic equipments like mobile phones, televisions, cameras, washing machines etc are imported in US from this nation, this imports are because of the attractive prices at which this products are sold, the reason behind this low pricing is the cheap labour force available in china due to its large population dividends.

Exchange rate depends on the trade terms, if the imports will be reduced then the value of dollar will rise with respect to chinese renminbi, in other words the dollar will become more strong, there will be scarcity of dollar in the international market, as of January 2018 the exchange rate of 1 dollar is equal to 6.34 chinese yuan, in future this value of yuan will increase.