In March of 2012, President Obama signed a trade bill into law that will punish China for keeping the value of its currency, the yuan, artificially low. According to Reuters,
A U.S. trade bill targeting Chinese imports goes against international rules and Beijing will not adjust the value of its currency to try to bridge a trade deficit that is Washington's problem to fix, China's commerce minister said on Wednesday.
President Barack Obama is set to sign the bill into law to allow duties to be imposed on subsidized goods from China and Vietnam, which the White House says will protect American jobs.
Using two supply and demand graphs, one for the market for yuan in the United States, and one for the market for dollars in China, show how China is able to keep its currency at an artificially low exchange rate. First, show the effects of an increase in the U.S. demand for Chinese products. Next, on the same graphs show how the Chinese government counters this so that the value of its currency remains stable.