RESEARCHSection VII. ConclusionThis paper used data on US-China trade since 1984 to study the effects of an appreciation of the Renminbi on thetrade balance as well as the real GDP’s of the two countries. The topic of US-China trade has come under increasedscrutiny over the past couple years since the US trade deficit has ballooned. Still, there is no consensus on what theprecise effects of an appreciation of the RMB would be. While the results of this paper support the hypothesis that anappreciation of the RMB would significantly decrease the magnitude of the US-China trade balance, they also showthat China’s export sector and overall economy would suffer. However, in the medium term this might be a positivedevelopment in so far as it helps China control inflation and achieve its goal of decreasing its reliance on foreigndemand for economic growth. Regardless, this analysis does not suggest that China should allow the RMB to float;an evaluation of the merits of floating is beyond the scope of this paper. Additionally, as suggested by the impulseresponse analysis, an appreciation of the RMB would have significant though limited benefit for the US economy.It also suggests that the rest of the OECD might have the most to gain from an appreciation of the RMB due to thesubstitution to their goods and away from Chinese goods. The significant positive effect on the real GDP of boththe US and the rest of the OECD that has been withheld by the Chinese government’s refusal to allow the RMB toappreciate indicates that these policies should be considered mercantilist and treated as such.From the US perspective, this study emphasizes that the US government should not expect China’s appreciationto be the magic impetus that revives the US economy. Indeed, the analysis indicates that the full effects of a gradualappreciation will only be felt over a period of 2-4 years. Thus, more focus should be placed internally on job creationinstead of placing blame externally, especially since this has proved to be counterproductive in dealing with a Chinesegovernment determined not to appear influenced by the US. From the Chinese perspective, an appreciation willhave some negative effects on its real GDP growth rate, but it will have many positive side effects. These includethe beginning of a shift from reliance on exports to an economy driven by domestic demand, which would make itless vulnerable to foreign economic shocks. The appreciation would also help control domestic inflation and assetbubbles that can be particularly dangerous to China’s economy given the frailty of the banking sector. Finally, itwould aid in decreasing the income gap between the upper class that includes the owners of exporting firms thatare benefitting from the undervaluation of the RMB to the average Chinese consumer who is still quite poor despitethree decades of rapid economic growth.In order to inform policy decisions in the future and in other areas, further <strong>research</strong> is necessary on the effects ofa floating exchange rate using the vector error correction models that I use in my paper. In addition, improvementsin data collection are essential in ensuring the accuracy of these future studies. More <strong>research</strong> will decrease theuncertainty associated with international trade and allow consumers and companies across the world to makeinvestment decisions more efficiently, thereby increasing economic growth rates.ReferencesAhmed, Shaghil. “Are Chinese Exports Sensitive to Changes in the Exchange Rate?” International Finance Discussion Papers. 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