IntroductionThere have been numerous calls from U.S. policymakers for China to allow its currency to float freely. Critics have pointed out that China's policy of manipulating its currency to prevent it from appreciating has given its makers an unfair advantage. Goods sold domestically and those exported by Chinese manufacturers are relatively cheaper than those of manufacturers from economies with undervalued Chinese currencies; especially the United States. This aspect has been blamed as a major contributor to the United States' large annual trade deficits. Probably under pressure, China allowed its currency to appreciate. For example, it allowed its currency to appreciate against the US dollar by 21% between July 2005 and 2008 (even though a US trade surplus of 30.1 was still recorded). Although it halted the appreciation due to the global financial crisis, it allowed its currency to appreciate against the US dollar at a lower rate of 6% between June 2010 and August 2011 (Morrison and Labonte, 2011). The impact of Chinese currency appreciation on both economies (China and the United States) is the question that needs an answer. There are already divergent opinions on the real benefits of such a scenario. In the case of China, some have argued that an appreciation would harm its export competitiveness. In the case of the United States, the expected benefits of a stronger currency are undermined by what opponents have described as a potential increase in the price of Chinese exports which would consequently affect American consumers and businesses that use coins and components made in China. Likewise, a stronger currency could limit the ability of investors to purchase US assets (Morrison and Labonte, 2011). Considering the mixed environment...... middle of paper ...... current trade deficit. Yes, there will be benefits from increasing the global competitiveness of American products. However, there are other factors not associated with the Chinese currency that affect the United States' global trade competitiveness. A good example is the fact that between 2005 and 2008, when China allowed its currency to appreciate by 21%, the US trade deficit with China increased by a further 30.1%. Furthermore, by exerting more pressure on China to devalue its currency, the United States runs a major risk of losing capital inflows particularly from Chinese investors. Works Cited Morrison, WM and Labonte, M. (2011). The Chinese currency: an analysis of the economic issues. Congressional Research Services Report. Retrieved December 14, 2011, from http://www.fas.org/sgp/crs/row/RS21625.pdf. Murshed, S. M (1997). Macroeconomics for open economies. London: Dryden Press.