Maybe the price of Chinese-made products such as furniture and auto parts will rise. Perhaps the cost of other goods imported from Asia, such as cars and computer chips, will increase, too. And maybe that will provide a spot of relief for the manufacturers in countries, such as the United States, that have been battered by competition from across the Pacific.
All of that could result from yesterday's announcement by China that it is allowing its currency, the yuan, to rise in value, by about 2 percent initially, with the prospect of additional small daily moves limited by a "band." The move was a bow to pressure from the United States and other countries whose officials have complained that by pegging the yuan at 8.28 per dollar, Beijing kept its currency artificially cheap, thereby giving its exporters an unfair competitive edge.
But it is unclear whether China has bowed deeply, or just nodded politely, in the direction of those complaints. The steps Beijing unveiled yesterday offered only the hope -- not the guarantee -- that the yuan will rise by a significant amount in coming months. And even if the Chinese currency does move a good deal higher, that may not lift the prices of imported Chinese goods by much. Furthermore, a stronger yuan may have only a modest effect on the currencies of other major U.S. competitors such as Japan.
Accordingly, many economists were skeptical of the claims made by some government officials, such as Adolfo Urso, Italy's deputy trade minister, who called the news "an excellent sign that will allow Italian production to breathe again."
The Chinese measures suggest that the yuan could rise substantially, and if that happens, other Asian currencies could follow suit -- which would probably have a "noticeable impact" on transpacific trade flows, according to Kristin J. Forbes, an economist at the Massachusetts Institute of Technology and former member of President Bush's Council of Economic Advisers.
"But at this point, it's too soon to know whether China will wait or whether it will allow additional moves [in the yuan] -- and therefore, what the impact will be," Forbes said.
The greatest excitement yesterday surrounded the Chinese statement that the yuan, also known as the renminbi, would henceforth be linked to a "basket" of currencies, including the dollar, against which the yuan could rise or fall as much as 0.3 percent each day. Currency traders and politicians alike were quickly doing the math to see how fast the yuan would appreciate if market demand pushed it to the top of the band day after day.
"In 10 days, they go 3 percent," said Sen. Charles E. Schumer (D-N.Y.), who has been leading the charge in Congress for a yuan revaluation by co-sponsoring a bill that threatened to slap tariffs on Chinese goods. At that rate, it would take only three or four months for the yuan to appreciate by the 20 to 25 percent that many U.S. economists and manufacturers have argued would fairly reflect China's economic fundamentals.
But Schumer said the Chinese authorities, who are worried about keeping their workers employed in healthy export industries, may use the new system to keep the yuan from ascending rapidly. Beijing is keeping secret the precise workings and composition of the basket, so it could use its huge war chest of dollars to keep the currency's move at a snail's pace. Some monetary experts predict that such a scenario is likely.
"If this results in a substantial renminbi revaluation, that would be a good thing," said Morris Goldstein, a scholar at the Institute for International Economics. "But at this point, it's far from assured, and my guess is they aren't going to let it move very much." After all, he said, "if they were willing to allow it to move a lot, it would have been easier for them to do it all at once."
Tony Fratto, a U.S. Treasury spokesman, said the department's understanding of the new system was that the yuan would be allowed to rise by the maximum amount day after day, provided market forces dictated such an outcome.
There are other grounds for questioning how far-reaching the effects will be. A rise in the yuan does not necessarily translate into commensurately higher prices for Chinese goods, because many of them, such as DVD players and clothing, contain components and raw materials from other countries.
In recent congressional testimony, Douglas J. Holtz-Eakin, director of the Congressional Budget Office, cited studies suggesting that even if the yuan rose by, say, 20 percent, the increase in the price of Chinese imports would probably average only about 4 to 6 percent.
Perhaps the most encouraging signs yesterday, economists said, were the jump in the exchange rate of the Japanese yen and Malaysia's decision to de-link its currency from the dollar following China's announcement. That suggests an upward move in the yuan is likely to produce "knock-on" effects on other Asian currencies that have stayed lower than they otherwise would because of Chinese competition.
But even a rise in all Asian currencies of about 20 percent against the dollar would probably lead to a reduction of about $80 billion in the U.S. trade deficit, according to calculations by Goldstein -- an appreciable amount, but only a small fraction of last year's $617 billion gap.
At a Treasury briefing yesterday, a senior U.S. official conceded that the yuan revaluation is no panacea for the trade imbalance. "To use the economists' term," he said, "it is a necessary, but not sufficient condition."