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Using the J Curve effect to evaluate the impact of a revaluation of Chinese Yuan (or a depreciation of US dollar relative yuan) on the US-China trade balances. Please note that US trade balances are calculated in dollars and US has a trade deficit with China.

1. Short-run effect: US-China Trade Balances during Currency Contract period (both price and quantity are already contracted by buyers and sellers and they cannot be changed)

e.g. Timeline of transactions: Contract signed (t1)Yuan Revaluation or dollar depreciation (t2) Payments Due (t3) recorded in US exports and imports

	US import contracts in $	US import contracts in Yuan
US export contracts in Yuan	US imports stay constant and US exports increase in $ term. US BOT will improve (less deficit)
US export contracts in $

1. Pass-through Period: In this period, firms and individual can renegotiate the contracts of exports and imports, but they still face constraints to adjust production or finding other suppliers, i.e. quantity of supply and demand are constant only prices of export and imports can change.

	US imports with inelastic supply (in China)	US imports with inelastic demand (in US)
US exports with inelastic supply (in US)	Qexp stay constant while Pexp increases or stay the same Qimp stay constant while Pimp decreases US BOT will improve (less deficit)
US exports with inelastic demand (in China)