On trade, Trump either doesn’t understand the basic facts or he doesn’t care
Currencies go up, and currencies go down, but that doesn't necessarily mean that they're being manipulated.
That's about as generic as statements get, but it's apparently news to President Trump. “Russia and China are playing the Currency Devaluation game,” he tweeted Monday morning, “as the U.S. keeps raising interest rates. Not acceptable!” The only problem, of course, is that almost none of this is true. Sure, Russia's currency, the ruble, has been falling quite a bit recently, but that's for a very good reason. And China's, the yuan, hasn't really fallen at all. If he was confused about this, Trump could have just asked his own Treasury Department. It declined to name either of them a currency manipulator just the other day.
But I guess that wouldn't have been as exciting a tweet.
Now, there are two things to understand here. The first is that the stronger a country's economy is, the stronger its currency tends to be. That's because a faster-growing economy needs higher interest rates to keep inflation in check, and higher interest rates make its money more attractive to investors. Just as important, though, is the fact that this is forward-looking. Markets, in other words, push a country's currency up if they think it's going to be raising rates more than had previously been expected, and push it down if they don't think it's going to be. That's why Trump's election sent the dollar soaring, as investors hoped that his combination of tax cuts, deregulation, and perhaps infrastructure spending really would make American growth great again, and Trump's presidency has sent it back down, as they've quickly realized that it hasn't.
The second is that there really are countries that manage to keep their currencies artificially weak at the same time that their economies are genuinely strong. It's a three-step process. First, their government prints money to buy all of the dollars that their exporters have earned at whatever the prevailing exchange rate is. Then they use those dollars to invest in things like U.S. Treasury bonds to keep up the demand for our little green pieces of paper. And finally, to offset all the money they've created, they stop their banks from lending as much out. The idea is to keep their currency and their wages lower than they “should” be, so that it's cheaper for them to sell things overseas. It's a de facto export subsidy and import tariff.
Here's what this has to do with Russia and China: nothing, anymore. The ruble is down not because its government wants it to be, but rather because our government is threatening to put even more sanctions on its already-beleaguered economy in response to their continued support for the Assad regime in Syria. (Trump, though, is reportedly trying to reverse his administration's announcement that it was going to do so “because he was not yet comfortable” with it). And the yuan isn't down in any meaningful sense to speak of. It might have dropped a small amount the last few days, but it's still up around 3.7 percent since the start of the year and 10.7 percent since Trump took office. That, combined with the fact that its trade surplus has fallen a lot as a share of its economy, tells us that Beijing isn't pushing its currency down to keep its exports up anymore. Instead, it has been doing the opposite: spending its dollar reserves to prop the yuan up.
It's just more proof that Trump has no idea what he's talking about when it comes to trade. That was already pretty clear from the way he went from pulling out of the alleged “disaster” that was the Trans-Pacific Partnership to now looking at trying to rejoin on an apparent whim to then tweeting Tuesday night that he doesn't like the deal. Or in how his advisers said they wouldn't exempt anyone from our new steel and aluminum tariffs, then did so for everyone but Russia, China, and Japan. It makes complete sense that Trump can't tell which currencies are going up and which ones are going down, let alone which of those are being manipulated.
It's hard to make policy when you don't know the facts.
Original article by Matt O'Brien , in Wonkblog .
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It's pretty clear that Mr Trump is "playing at" trade war. What's frightening is that the Unthinking Faithful TM continue to smile at him beatifically.
It's hard to make policy when you don't know the facts.
It's much more difficult if one does not understand the definition of facts and surrounds themselves with folks of like mindlessness.
How can anyone, even the most ardent Trumpist, not be baffled by the on-again/off-again TPP membership?
Or the package of tariffs that he put up against China... but which will probably hurt the EU - our allies - worse?
It's both, he doesn't know and he doesn't care. I hope the damage Trump causes with this trade war hits every one of his voters really hard. They deserve to feel the full force of what they voted for.