More double standards
By Scott Sumner
I’ve done a number of posts (here and at MoneyIllusion) pointing to the increasing tendency of the US to bully smaller countries. One of the worst aspects of these policies is the double standard that is applied. Simply put, the US does not adhere to the policies that we demand of other countries. We insist that other countries adhere to our foreign policy objectives, such as sanctions, but refuse to adhere to the policies of our friends and allies. The US punishes other countries for being tax havens, while ignoring the enormous international flow of funds into US shell corporations. We sign trade agreements and then ignore the provisions.
Today’s Financial Times reports another example of US bullying:
The Trump administration has proposed punitive duties on countries that artificially lower their currencies — a sweeping trade policy tool that could be used against US allies as well as adversaries such as China. . . .
“Foreign nations would no longer be able to use currency policies to the disadvantage of American workers and businesses,” said Wilbur Ross, the US commerce secretary. “This proposed rulemaking is a step toward implementing President Trump’s campaign promise to address unfair currency practices by our trading partners.”
As you might imagine, the sanctions applied to countries that “manipulate” their currencies will not apply to the US. Indeed President Trump is currently pushing the Fed to manipulate the dollar lower:
President Donald Trump said Saturday that the U.S. dollar is too strong and took a swipe at Federal Reserve Chairman Jerome Powell as someone who “likes raising interest rates.”
In fact, the only manipulation that hurts workers is not foreign currency depreciation (as Trump and even many economists assume) rather it is contractionary monetary policies that appreciate a currency and reduce NGDP. The tight Japanese and European monetary policy of 2008 hurt American workers.
All central banks manipulate their currencies. That’s their job. The Treasury will undoubtedly be asked to come up with a coherent definition of currency manipulation, and undoubtedly will fail. The current criterion used by the Treasury includes bilateral trade deficits, which no respectable economist takes seriously. Nothing good will come out of this initiative (which seems to have bipartisan support):
One concern with such provisions has always been that if applied with reciprocity, currency provisions could constrain the Federal Reserve, or undermine its independence. Another is that it could invite legal challenges at the World Trade Organization. Yet another is that there is no agreed upon method to measuring undervaluations.
In any case, some analysts say such a US step could be hugely destabilising to the world economic order at a time when it is already under strain. “Were this to happen, it would be a highly significant and corrosive development and a major black eye for the US and the international monetary system,” said Mark Sobel, a former senior US Treasury official.