What do the commodity trade figures among the 3 largest economies in the world: America, China, and Japan say about the risk of competitive devaluations?
Abstract: Although the value of trade between China and Japan is balanced, China has the largest market in the world – the United States of America – compared to Japan.
Figures for 2022 Japan’s trade with America
Japan’s exports to America = $135 billion
Japan’s imports from America = $75 billion
A surplus in favor of Japan = $60 billion
China’s trade with America
China’s exports to America = $506 billion
China’s imports from America = $151 billion
A surplus in favor of China = $355 billion
China’s trade with Japan
China’s exports to Japan = $166 billion
Japan’s exports to China = $164 billion
Balance = almost zero
This competition in the US market largely explains why China abandoned the yuan’s stability in 2022 to maintain its competitiveness against the collapsed Japanese yen against the dollar.
This series of interactions from a country’s exchange rate to a competing country’s exchange rate is known as competitive devaluations, which means that a weak exchange rate in a competing country – such as the Turkish lira in the case of Egypt – may force competitors to take similar steps.