The debate about the influence of exchange rates volatility on trade is intensifying, as US President Donald Trump attempts to blame the People’s Republic of China’s exchange rate policy for the US current account deficit.

The link between exchange rates and trade is a complex one, and while there are several analyses of this relationship, none are considered definitive.

Some experts say exchange rate volatility increases the uncertainty of companies about potential export profit, leading them to reduce exports, but that is theoretical. Others say a significant proportion of companies will increase exports, aiming to offset the loss on each exported unit. The latter explanation is strongly contested.

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http://bit.ly/2eTI5cI

Read the blog post

https://www.asiapathways-adbi.org/2017/04/how-does-exchange-rate-volatility-affect-value-added-and-gross-trade/

Author

Yizhe Daniel Xie is a PhD candidate at the Graduate School of Asia-Pacific Studies, Waseda University, and a non-resident fellow at the CSIS Pacific Forum.