Understanding the Sources of Friction in U.S.–China Trade Relations: The Exchange Rate Debate Diverts Attention from Optimum Adjustment

China has been accused of exchange rate manipulation that has caused large U.S. trade deficits, which have reduced U.S. welfare by increasing unemployment and reducing wages. In fact, the strong claims by some observers that the trade imbalances are deeply deleterious to China's welfare almost make it a moral imperative for the United States to use tariffs to force an renminbi (RMB) appreciation for China's own good.