Since the US-China Trade Deficit grew, would the USD be valued more now compared to the RMB? I'm curious to see how broadening or narrowing a trade deficit would affect a currency pair.
The &quot;US-China trade deficit&quot; isn't a real thing. Yes, there are some transactions classified as &quot;exports from US to China&quot; and others classified as &quot;exports from China to the US&quot;, and you can subtract the latter from the former and get a negative number, but that doesn't represent anything fundamental about the world economy. Suppose that the US were to stop buying widgets from China and buy them from Taiwan instead, and the country that was buying them from Taiwan were to start buying them from China. Everyone would end up buying/selling the exact same amount of widgets, yet the &quot;US-China trade deficit&quot; would go down despite absolutely nothing fundamental about the world economy changing.
The overall trade deficit of the US does have an effect on the USD, but higher trade deficits make a currency go down in value, not up. Of course, a decrease in currency value tends to decrease trade deficits, which means that this effect tends to be cancelled out.