Asia and the Global Economy (Jan 2023)

U.S. trade imbalances, East Asian exchange rates, and a new Plaza Accord

  • Willem Thorbecke

Journal volume & issue
Vol. 3, no. 1
p. 100054

Abstract

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The U.S. real effective exchange rate is at its highest level since 1985. In that year, the U.S. and its trading partners coordinated a depreciation of the dollar and the U.S. agreed to reduce its budget deficit. This paper reports that a dollar depreciation today would still improve U.S. trade imbalances with East Asia and the world. East Asian countries would also benefit from a dollar depreciation because it would lower the local currency costs of imported oil, commodities, and food and reduce imported inflation. The U.S. and East Asia should consider engineering a coordinated dollar depreciation and the U.S. should again reduce its budget deficit.

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