The rise in import levels in the country would be represented by a rise in the supply of the currency, as the nation will have to place more of its currency on financial markets in order to purchase the foreign currency that it requires to import the goods and services that it needs.

The fall in exports would be represented by a fall in demand for $ because Chinese consumers must first purchase $ before buying goods and services from the US.                          

A current account deficit will result in downward pressure on the exchange rate of a nation and unless the nation also enjoys a similar sized surplus in its financial and capital accounts, the currency is likely to depreciate, illustrated on the diagram by (P1 - P2).

Downward pressure on a nation's exchange rate will have a greater impact on a nation with a fixed exchange rate because this implies that the exchange rate is set at too high a level.  Unless the nation also has a similar surplus, in its financial and capital accounts, the central bank will shortly run out of foreign currency reserves.

The fall in import levels in the country would be represented by a fall in the supply of the currency (S1$ - S2$), as the nation will have to place less of its currency on financial markets in order to purchase the foreign currency that it requires to import the goods and services that it needs.

The rise in exports would be represented by a rise in demand for $ because overseas consumers must first purchase the $ before buying goods and services from the US.     

A current account surplus will result in upward pressure on the exchange rate of a nation and unless the nation also enjoys a similar sized deficit in its financial and capital accounts, the currency is likely to appreciate in value.  This is illustrated on the diagram by a rise in the price of the $ from P1 to P2.

In a fixed exchange rate system a persistent surplus implies that the currency has been set at too low a value.  In the short run the central bank can balance this out with a deficit in the financial and capital accounts.  Long term, however, the government of this nation is likely to face pressure from over nations to raise its currency value, who may feel that the country is gaining an unfair advantage from an under valued currency.  For those IB students who followed the American election campaign of 2017 this was a recurring theme of Donald Trump, who accused both China and Germany of benefiting unfairly from an undervalued currency.

As the video highlights, the US has a large persistent trade imbalance with China.  This is balanced out by an equally large capital and financial account surplus.  In other words the Chinese government takes the US $s that it acquires from its current account surplus and uses them to purchase financial assets in the US - without this the US would be forced to take extensive corrective measures which might hurt both nations.

At some point those reserves will run out no matter how wealthy that nation is.

This is unsustainable long term as the loans will eventually need to be repaid and furthermore the loan repayments will add to the debits on the nation's finances.

The policy leads to lower levels of consumer demand and investment in the domestic economy.

Such a policy can push up the prices of expensive high end property in certain areas.  Such a policy also leaves those nations vulnerable to overseas investors suddenly pulling their investment out of the country, should their priorities change. 

Other nations may decide to impose a tariff barriers or other protectionist measures on the nation with the surplus, e.g. Donald Trump's sanctions on China.

Nations with a sustained current account surplus, over a period of time, are likely to see upward pressure on the value of their currency, which may reduce international competitiveness.

By purchasing foreign assets China is preventing its currency from rising in value.  This policy will be difficult to maintain over a long time period because many of those assets are already generating profits which then get repatriated, further adding to China's current account surplus. 

Other consequences may well be that China's trading partners simply get tired of such an unequal trading relationship and start to impose taxes and or tariffs on Chinese products. 

Unrest may also appear domestically from Chinese citizens who may wonder why all of their hard work and global domination of so many markets, has not led to comparable material improvements in their standard of living. 

The current account deficit's of western nations have reached staggering levels.  In 2015, for instance, USA recorded a current account deficit of $ 365.7 billion.  Imports from China stood at $ 481.9 billion while exports to the country were just $116.7 billion.  This was all financed by debt (which China owns a significant part of) as well as Chinese purchases of American assets.  As this trend rises the current account deficit with China will widen further and the demand for US and European assets will continue to rise.

Nationalist governments in both continents may well see an opportunity to gain support by promising to reign in China's increasing influence.  At some point too, America and the remainder of China's trading partners may have to start paying back more of the money borrowed.  Can China really keep financing America's deficit indefinitely?