Guard against neo-mercantilism

During the past two decades, China and Germany have followed neo-mercantilist policies through “exchange rate protection”. This involves maintaining an undervalued real exchange rate to generate a trade surplus, by indirectly subsidising exports and taxing imports (see Corden: Economic Policy, Exchange Rates, And the International System ps.37-38, 94-95).

These trade surpluses, particularly of China, have been a concern in the US, just as those of Japan were in the 1980s. These were tackled by negotiating voluntary export restraints’ (VERs), by which Japanese exporters of …

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