Production capacity

  The major reason why China has such a large trade surplus is its exchange rate. Even with a free floating RMB, China would still likely be the largest economy in the world by production. But it would not be able to post such a large trade surplus. China just has a larger production capacity than all of its competitors. Incredible industrial capacity, and the incredible size of its labor force.

  However that would not explain the trade surplus since a country of China's size should have consumption values equal to its production values all things being equal. Currently, China's production values exceed its consumption values, and that can only be explained by its undervalued exchange rate. It really is in China's favor to promote a strong RMB. It increases Chinese incomes, increases China's nominal GDP, and increases China's ability assert national power over other nations through economic influence. Because many countries would look to China not only to purchase its goods, but also to sell their goods to.

  Like China, foreign countries also have their very powerful export lobbies. Lobbies that wield incredible influence over their state officials. And they are very sensitive to their export revenues and would pressure governments back at home if China is not pleased.

  There is national interest, and then there is factional interests. Many factions within countries such as the export lobby are willing to sacrifice their national interests in favor of their personal interests. They are willing to pressure the national government to depreciate its own currency simply to extend their own export revenues. Unless it is bought about as a result of a trade deficit, there is no excuse to depreciate a currency.

  If there is a trade deficit, then it is absolutely justified to depreciate the currency. The only way to recreate a trade balance is to let the national currency fall in value, in other words, to let wages and incomes fall. But there is no proper motivation to let the national currency devalue and to let wages and incomes fall if there is no trade imbalance. The only motivation is to further enrich those in the export sector.