It becomes cheaper for businesses to import goods and services, rather than use goods supplied domesticly.
If China does not increase the value of its currency, then one unit of its currency will tend to fetch less amount of Dollars.That means less amount of Dollar will need to be paid in exchange of 1 unit of Yuan.Lower value of Yuan makes China’s exports cheaper.The people in US find the goods imported from China cheaper in relation to the goods produced within the country and hence they demand the goods imported from China rather than their domestic products.This tends to result in a GDP less than it would have been if the people had demanded for domestic products. The value of Dollar will be greater than Yuan.that means more Yuan will need to be paid for 1 Dollar.Hence people of China will not tend to demand the imports from US as they will find their domestic products cheaper.Hence the exports from US to China will be less than its imports from China . It results to the flow of Dollars out of US.It consequently leads to a deficit balance of payment for US and a trade surplus in China.
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