We have tended toward the latter view and argued China's economic weakness most likely results from an over-valued yuan. Over the last few years, the U.S. oil trade deficit has shrunk markedly as a result of both surging shale oil production, and from mid-2014, a collapse in oil prices.
This has dramatically improved U.S. terms and trade and led to a re-valuation of the dollar against the currencies of its trading partners, that is, all but China. With the exception of a small adjustment last month, Chinese monetary authorities have declined to devalue the yuan in line with the yen, won or euro. As a result, China's export sector has found itself at a competitive disadvantage and suffered accordingly. By this line of thinking, we would expect to see China's consumer sector strong and its manufacturing and export sectors weak. The data largely, but not completely, support this narrative.
On the other hand, if we attribute the U.S. currency run-up to surging shale production, then the dollar has probably peaked. U.S. oil production is dropping. Meanwhile, U.S. oil consumption growth continues to be strong. As a result, U.S. oil imports were up over the last three months. With this, the U.S. oil trade deficit will once again begin to increase in both volume and unit price terms. If we believe shale is behind dollar appreciation, then a reduction in shale production and an increase in oil prices will devalue the U.S. dollar.