Don't Blame China's Yuan for Trade Deficit

America’s trade deficit with China hit a record $295 billion last year. Protectionist sentiments are running high, with recent U.S. complaints filed with the World Trade Organization and passage in March of a countervailing tariff bill. Such measures have been accompanied by a familiar chorus calling for a major revaluation of the yuan to counteract China’s alleged currency manipulation intended to keep its exports cheap.

But to focus on China’s currency is to miss the real story behind the country’s trade surplus.