Today’s tensions between China and the US have many echoes of those between Japan and the US in the 1980s including, most clearly, over the exchange rate. The lesson for China is not, as some have suggested, that China should withstand US pressure on its currency so as to avoid a slide into a Japan-style lost decade. It is that China should adjust sooner rather than later. Waiting would cause the needed shift and the associated risks to be larger.
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