Robin Harding, Gabriel Wildau, and Song Jung-a report that China, Japan, and South Korea face protectionist pressures from the U.S. ("China, Japan and South Korea draw closer on trade," May 10).
The three countries should offer to appreciate their currencies together against the US dollar in exchange for freer trade. Recent research on the international elasticity puzzle finds that tariffs disrupt trade much more than exchange rate increases do.
Using exchange rates rather than tariffs also eliminates political interference in individual sectors and obviates the paralyzing uncertainty that arises before tariffs are implemented. In addition, a concerted appreciation of Asian supply chain currencies (including Taiwan's) against the US dollar would redirect exports from the US to Asia without undermining the competitive positions of individual Asian economies relative to their neighbours.
Some might object that exchange rates in the region cannot appreciate together against the US dollar. However, one should never underestimate the ability of Asian officials to implement policies that are good for their economies.
May 14, 2018 Financial Times
