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U.S.-EAST ASIA TRADE.
Term Paper ID:26313
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Essay Subject:
Examines effects of value of U.S. dollar & the euro (European currency) on trade between U.S. & major East Asian economies.... More...
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6 Pages / 1350 Words
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APA Format
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Paper Abstract:
Examines effects of value of U.S. dollar & the euro (European currency) on trade between U.S. & major East Asian economies.
Paper Introduction:
VALUE OF US$ & EFFECT ON EAST ASIAN TRADE
This research examines the effect the value of the US$ in international currency exchange on trade between the major economies of East Asia and the United States. For purposes of this research, the major economies of East Asia are assumed to be those of Japan, the People’s Republic of China, Hong Kong, Taiwan, the Republic of Korea (South Korea), and Thailand. The introduction of the single currency, the euro, for 12 of the 15 member states of the European Community (EC) in 1 January 1999 is expected to have some impact on the reserve currency of preference status of the US$. In turn, the euro could have an impact on the value of the US$ in international currency exchange. Therefore, the potential effect of the euro on the value of the US$ in international currency exchange also is addressed
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Trade between the United States and thePeople's Republic has remained strong, although American exports to Chinacould be expected to increase in the wake of a reduction in theinternational currency exchange value of the US$. Dale, R. (1999 March 3). These concerns explain more than anyother factor why the Federal Reserve does not lower interest rates in theUnited States, which are several multiples of those in Japan. Monetaryauthorities in the United States are reluctant to do anything to dissuadeAsian investors because of the detrimental effects that such action wouldhave both on the securities markets in the United States and on the currentaccount balance of the United States. As an example, Japan isheld to be mired in an economic recession. Paterson, L. Independent [London], 15. REFERENCES Adams, R. & Paterson, L. Conversely, reduction in the currency exchange value ofthe US$ would cause exports from the major East Asian economies to theUnited States to be less affordable in the United States. Such exports were not especiallygreat even before Japan entered economic recession. Realistically, of course, major economieswould not likely abandon their own currencies in favor of the US$. In turn, the euro could have an impact onthe value of the US$ in international currency exchange. In opposition to the argument that the euro could adversely affect theposition of the US$ as the reserve currency of choice is the contentionthat the United States has no worries about the impact of euro on thereserve position of the US$ ("The Euro and the Dollar: Strut Your Stuff,"1996). Theadoption of the US$ by several countries in the Western Hemisphere, as wellas by some countries in Asia, such as the Philippines, however, could causeany challenge to the reserve currency status of the US$ to be an even moredifficult task than it already is. Bundesbank steps in to boostailing euro. In turn, the euro could have an impact on the value of the US$in international currency exchange. (1996, 25 March). (1996, 19 October).Economist, 341(7988), 75-76. Friedman, A. Such action would negate the effect of currency exchangevalues on international trade. South Korea and Taiwan, albeit to alesser extent than Japan, made it difficult for American exporters evenbefore the economic crisis hit East Asia. Therefore, thepotential effect of the euro on the value of the US$ in internationalcurrency exchange also was addressed in this research. In the absence of the erection of new trade barriers to UnitedStates products by these economies, the reduction in the currency exchangevalue of the US$ would result in an increase of United States exports tothese economies. Should this argument prove to be correct, the euro will have littleif any impact on trade between the major East Asian economies and theUnited States. During the second month in the life ofthe new currency, however, the currency exchange value of the europlummeted against the US$ (Paterson, 1999; Coyle & Paterson, 1999). More importantly, however, growth must be restored in theseeconomies before American exports to those economies can grow substantially("Exporters Remain Cautious," 1999). Exporters remain cautious. (1999 January 4). A continuing reduction in exports to theUnited States from major East Asian economies could be expected to cause arecessionary effect in these economies, which, in turn, would reduce thedemand for United States products in those economies, regardless of thecurrency exchange value of the US$. To consider the situation in a rational manner, however, one shouldnot place to much emphasis on the performance of any currency over a twomonth period, especially so when those two months are the first two monthsin the life of the currency. Therefore, the potential effect of theeuro on the value of the US$ in international currency exchange also isaddressed in this research. Financial Times,v. Value of US$ & Effect on East Asian Trade This research examines the effect the value of the US$ ininternational currency exchange on trade between the major economies ofEast Asia and the United States. Asian money isflooding into the United States into investments of various types, butespecially into the stock market. As aconsequence, exports to the United States from the major East Asianeconomies would be expected to decline in the wake of a weakening of theinternational currency exchange value of the US$. New currency ideas miss the point:THINKING AHEAD. American exports were relatively strong in these economies prior tothe economic crisis that befell East Asia and a reduction in the currencyexchange value of the US$ would benefit American exports to theseeconomies. News analysis: Why the golden euro haslost its lustre. With respect to the impact of the euro on the international currencyexchange value of the US$, one argument contends that the establishment ofthe euro will be successful and that the euro will become an alternativereserve currency to the US$ (Adams, 1997). The German central bank has intervened in the international currencyexchange markets to strengthen the position of the euro (Coyle & Paterson,1999). This research found that the euro, during its first two months oflife, has had little effect on the status of the US$ as a reserve currency,and, in turn, has had little impact on trade between the United States andmajor East Asian economies. For purposes of this research, the majoreconomies of East Asia are assumed to be those of Japan, the People'sRepublic of China, Hong Kong, Taiwan, the Republic of Korea (South Korea),and Thailand. (1999 February 16). Nation [Thailand], 5. This argument is not based on a contention that the euro would notbe accepted as a reserve currency, so much as it is based on a contentionthat the EC will not be able to successfully establish the euro as a singlecurrency for the great majority of the member states of the EC (Chote,1996). A net result of thesetwo outcomes would be a reduction in the United States trade deficit withthe major East Asian economies. International Herald Tribune, 2. The continuing bull market in the UnitedStates largely is a product of this Asian money (Gewitz, 1998). Rather, any changes in the character and levels of tradebetween the major East Asian economies and the United States will derivefrom conditions within the manor East Asian economies and within the UnitedStates economy, as the international currency exchange value of the US$would not be affected to any great extent by the presence of the euro ininternational currency markets. In the greater schemeof life, however, two months is nothing at all. The introduction of the single currency, the euro, for 12 ofthe 15 member states of the European Community (EC) in 1 January 1999 isexpected to have some impact on the reserve currency of preference statusof the US$. Two months may be an eternity to the narrowand fixated minds that inhabit Wall Street offices. (1997, 21 November). Areduction in the international currency exchange value of the US$, however,would not have the same magnitudes of effects on trading between the UnitedStates and each of the major East Asian economies. The euro and the dollar: Strut your stuff. The continuing strength of the US$ against the currencies of majorEast Asian economies is tilting the balance of trade between the UnitedStates and these economies even further in favor of the Asian economies. With respect to the opposing arguments relative to the impact of theeuro on the reserve currency position of the US$, the contention that theEC will not be able to establish the euro has been proved to be incorrect.Further, during the first month in the life of the euro, the new currencyperformed well against the US$ in international currency markets; therebyadding strength to the contention that the euro would challenge the US$ asan alternative reserve currency. The strength of the US$ in international currency exchange markets inearly-1999, more than anything else, is a reflection of the concern inAsian economies over the state of their own economies. FinancialTimes, 1 . Economic recession, however, isa relative state-relative to what preceded it in an economy, as opposednecessarily to what is occurring in some other economy. (1999 February 8). Over the longer term, both the Europeans and the Japanese desire toestablish alternatives to the US$ as reserve currencies (Friedman, 1999).Over the longer term, however, several nations may abandon their nationalcurrencies; opting instead to use the US$ as their own domestic currency(Dale, 1999). The unemploymentrate in Japan and interest rates in Japan during this period of recessionremain well below those in the booming economy of the United States.Further, income levels in Japan remain high. This research examined the effect the value of the US$ ininternational currency exchange on trade between the major economies ofEast Asia and the United States. Loss of confidence in Asian economieskeep dollar aloft. Coyle, D. Each of these outcomes, however, likelywould be short-term in character. The costs of productionin China are so much below those in the United States, however, that it isunlikely that the united States will reverse the foreign trade deficit withChina in the foreseeable future. Dollar may still surprise bears. Should the euro be establishedas an alternative reserve currency for the US$, some analysts suggest thatthe US$ will be devalued by the market as demand for US$ holdings subside.A reduction in the international currency exchange value of the US$ wouldcause American exports to be more affordable in the major East Asianeconomies. (1998 November 12). Chote, R. Obuchi calls for currency cooperation:Japan's leader seeks a "tripolar" system to keep up with dollar and euro.International Herald Tribune, 8. The People's Republic of China differs from Japan and from the othermajor East Asian economies. This research also found that a decrease inthe international currency exchange value of the US$ would benefit theUnited States in trade with the major East Asian economies, but that suchbenefit would be limited to some extent by other factors. Taking on the dollar. International Herald Tribune, 1. The introduction of the single currency,the euro, for 12 of the 15 member states of the European Community (EC) in1 January 1999 is expected to have some impact on the reserve currency ofpreference status of the US$. Thus, even in a return to pre-crisis conditions, the United States likely will have trade deficits withthese East Asian economies. (1999 January 8). Independent [London], 15. The situation is different in South Korea, Thailand, Taiwan, and HongKong. Gewitz, C. Thus, a reduction in thecurrency exchange value of the US$ would not necessarily produce a greatincrease in American exports to Japan.
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