Though China's share of world trade exceeds that of Japan, little is known about the response of China's trade to changes in exchange rates. The few estimates available have two limitations. First, the data for trade prices are based on proxies for prices from other countries. Secondly, the estimation sample includes the period of China's transformation from a centrally-planned economy to a more market-oriented one. We address these limitations with an empirical model explaining the shares of China's exports and imports in world trade in terms of the real effective value of the renminbi. The specifications control for foreign direct investment and for the role of imports of parts to assemble exports. Parameter estimation uses disaggregated monthly trade data and excludes China's decentralization period. We find that a 10 percent real appreciation of the renminbi lowers the share of aggregate Chinese exports by nearly one percentage point. However, the estimated response of imports is negligible and lacks precision. Copyright � 2007 The Authors; Journal compilation � 2007 Blackwell Publishing Ltd.

This paper evaluates the evidence bearing on the question of whether China's buoyant export growth has led to significant changes in the import prices, and thus inflation performance, of its trading partners. This evidence suggests that the impact of Chinese exports on global import prices has been, while non‐ negligible, fairly modest. We identify a statistically significant effect of US imports from China on US import prices, but given the size of this effect and the relatively low share of imports in US GDP, the ultimate impact on US consumer prices has likely been quite small. Moreover, imports from China had little apparent effect on US producer prices. Finally, using a multi‐country database of trade transactions, we estimate that, since 1993, Chinese exports lowered annual import inflation in a large set of economies by 0.25 percentage point or less on average.

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