[Arguendo]

Their argument is that inflation would force the Chinese government to stop printing yuan, which would kill the dollar peg and allow the yuan to rise dramatically against the dollar.

I’m not convinced this would be disasterous for us. It would mean cheap goods from China weren’t so cheap, but it would significantly reduce our trade deficit. Right now we’re enjoying artificially cheap imports from China, but in the end these things tend to balance out.

[alecqss]

Their argument is that inflation would force the Chinese government to stop printing yuan, which would kill the dollar peg and allow the yuan to rise dramatically against the dollar.

Isn't that inflation would first cause yuan to drop against the dollar, then, with printers stopped (if such thing ever happens anywhere) to rise... making it even, I suppose.

[stylin_geek]

China heavily subsidizes its manufacturing sector.

With the current drop in demand for Chinese goods, the Chinese government is probably no longer collecting enough revenue to keep the subsidies going.

Which means Chinese manufacturing is going to crash, hard.

However, the Chinese hold a trillion dollars they may very well need to use to stay afloat.

What happens when the Chinese start spending all those dollars?

I would expect the dollar to depreciate in value rapidly, Yuan or no Yuan.