Rebalancing Trade in East Asia: Evidence from the Electronics Industry

ABSTRACT

China’s trade surplus remains huge. Researchers reported that China’s exports decimate manufacturing job abroad and stoke protectionist pressures. China’s surplus is concentrated in the electronics sector. Much of the value-added of China’s exports of smartphones, tablet computers, and consumer electronics goods comes from processors, sensors, and other parts and components (p&c) produced in Taiwan, South Korea, Japan, and ASEAN. This article finds that the exchange rates in countries supplying p&c are crucial for understanding China’s electronics exports. A concerted appreciation of East Asian currencies is needed to rebalance the region’s exports. However, because of underdeveloped financial markets, the U.S. dollar remains the most important currency in the currency baskets of many East Asian economies. Countries resist appreciation against the dollar to maintain competitiveness vis-à-vis neighboring economies. This article considers ways to overcome this coordination failure and develop stronger consumption-oriented economies in the region.

KEYWORDS:

• East Asia
• exchange rate policy
• global value chains

JEL CLASSIFICATION:

• F14
• F23
• F42

Acknowledgments

I thank Ali M. Kutan and seminar participants at the 2nd CAG Conference on Evolving Finance, Trade and Investment in Asia at the National University of Singapore for many helpful comments. Any errors are my responsibility.

Notes

¹. Final electronic goods correspond to the HS classification numbers 8469–73, 8517–22, 8525–39, 8543–48.

². These data come from the CEPII-CHELEM database.

³. Electronic parts and components come from the HS classification numbers 8540, 8541, and 8542.

⁴. The website for the Bureau of Labor Statistics is www.bls.gov.

⁵. This paragraph draws on unpublished work that the author did with Dr. Masaru Yoshitomi.