China's Electronics Exports, the Renminbi, and Exchange Rates in Supply Chain Countries

China's trade surplus remains huge. Researchers have reported that China's exports decimate manufacturing job abroad and stoke protectionist pressures. China's surplus is concentrated in the electronics sector. Much of the value-added of China's exports of smartphones, tablet computers, and consumer electronics goods comes from processors, sensors, and other parts and components (p&c) produced in Taiwan, South Korea, Japan, and the Association of Southeast Asian Nations (ASEAN). This paper finds that exchange rates in countries supplying p&c are crucial for understanding China's electronics exports. A concerted appreciation of East Asian currencies is needed to rebalance the region's exports. However, because of underdeveloped financial markets, the U.S. dollar remains the most important currency in the currency baskets of many East Asian economies. Countries resist appreciation against the dollar to maintain competitiveness vis-Ã -vis neighboring economies. This paper considers ways to overcome this coordination failure and develop stronger consumption-oriented economies in the region.