Currency appreciation in emerging Asia and trade deficit in the US

Despite the global trade imbalance narrowed during the current economic recession, the improvement is not evenly distributed across different regions. While many economists blame the US trade deficit to the undervaluation of currencies in emerging Asia in general, and to the undervalued Chinese RMB in particular, no consensus has been reached as yet. Since a unilateral revaluation of the RMB has failed to reduce the trade deficit in the US, some commentators have recommended a joint appreciation of currencies in the emerging Asia as an instrument to restore trade balance between the US and Asia. Based on several simulation exercises on a multi-country macro-econometric model (the Fair model), this paper examines the likely consequence of the joint appreciation of the emerging Asian currencies on the trade deficit in the US. According to the results of simulations, neither a drastic unilateral appreciation of the RMB, nor a joint appreciation of currencies in emerging Asia, would reduce the trade deficit in US significantly