Undervalued Currencies Drive Global Trade Imbalances

The authors argue that Asia’s currency undervaluation—led by China—drives most global trade imbalances, allowing exports to surge while imports lag, and that currency policy, not tariffs alone, must be central to policy coordination. They critique the G-7/IMF for sidelining exchange-rate actions, and warn that Beijing faces a choice between allowing yuan appreciation or facing coordinated tariffs, with wide implications for Europe and the United States.