Is Chinese Import Demand Elasticity Necessarily Less than Unity?

John Tamny tries to argue that a yuan appreciation will not lower our bilateral trade deficit with China:

Some might say that any harm brought on less politically connected U.S. business sectors will be made up for by companies allegedly made more competitive by attempts to weaken China. But these people will have not thought through to stage three: China does import U.S. goods – over $34 billion in 2004. A weakened China will necessarily import less.

Chinese consumers will likely buy more products but at lower relative prices – so this statement is saying that Tamny knows that the elasticity of demand is less than unity.

His “stage two” is even more bizarre:

The unseen second stage that’s apparently being ignored by Treasury is that material imports are the major cost-factor for Chinese goods. If the yuan strengthens, China’s material costs will drop. Wages are a smaller component of the cost of Chinese goods, but a stronger yuan will give Chinese workers a real rise in income, and could potentially lead to lower nominal wages as they adjust to the revalued unit of account.

But Chinese wages still rise in real terms, which implies that their advantage in terms of value-added declines.