Both John Cochrane and Don Boudreaux are decrying – if that’s a strong enough word – the new rules being put in place to try to define currency manipulation. The Trump Administration is worried, as many have been, over whether some other countries artificially reduce their exchange rate so as to boost exports to the United States.
That this is a silly thing to worry about is obvious. The point of our indulging in the practice of trade is so that we get those things which foreigners make better or cheaper than we do. If they go then make the imports even cheaper by playing games with money we’re worried, right? Of course not, we’re rubbing our hands with glee at the idea of gaining those lovelies for even less of our own effort. That own effort that usually goes by the name of “exports”.
Don Boudreaux is, unusually for him, guilty of pulling his punches:
[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] If there was any doubt before now, there can be no doubt going forward: we Americans are today governed by imbeciles. Really. Literally. No hyperbole here. There is simply no way to explain the contents of this May 2019 U.S. Treasury report other than to recognize that it is the product of people completely untethered to economic reality and utterly ignorant of the economics of trade. The entire report is a Niagara of nonsense,…. [/perfectpullquote]Why not just tell them what you really think?
One of those nonsenses being highlighted by Cochrane. Even if we were – against Adam Smith’s advice – to worry about the balance of trade it wouldn’t be the goods trade we cared about but goods and services. Further, we’d not worry about any bilateral imbalance, it’s only the total that could even possibly – if wrongly – be thought of as a problem:
[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] Bilateral trade “deficits” are meaningless. China sends us shoes, Australia sends China coal, the US sends Australia airplanes. Pieces of paper flow the other way. We all come out ahead despite three bilateral “deficits.” (In quotes as this is a horrible word too, implying something is deficient every time you go to the Starbucks and suffer a coffee trade “deficit.” ) Bilateral goods deficits are even more meaningless. Italians send us prosciutto (goods), we send them software (services), and this is somehow a problem reflecting “currency manipulation?” [/perfectpullquote]There being one more thing I would add. It stems from this:
That $20 billion. The thing being that the United States has goods trade surpluses with some places. Like, say, the Netherlands. Or Hong Kong. Or Belgium. Each of those places the US has a goods trade surplus with over $20 billion a year (the listed figures are year to date).
So, by the new US rules Holland, Hong Kong and Belgium should be declaring the United States a currency manipulator and imposing corrective tariffs to compensate, should they? You know, sauce for goose, sauce for gander. And if you’re not willing to use the same criteria then you’d better have a damn good explanation why.
Oh, and what really makes this fun is that two of the countries don’t even have their own currency to play with. They’re also the two – Holland and Belgium – that don’t even have their own trade policies nor the ability to impose tariffs. That being part of being in the Euro part of the European Union. And Hong Kong’s trade policy is very simple – don’t have one. And their currency is pegged to the US dollar and has been for decades.
But think on it. The new US rules, if generally applied, would mean that plucky little Belgium should be getting into a trade war with the United States. Which is, perhaps we might essay the thought, not all that sensible. In fact, Don Boudreaux’s being polite when he calls this governance by imbeciles, isn’t he?
Um. Economics is a bit of a closed book to me, but I suspect that there are other issues to take into consideration apart from the actual cost of the goods. If Korea can make steel cheaper than we can, even after our best endeavours to improve efficiency, should we close down our steelworks and simply buy from Korea? if we do, we would be: 1 – putting a lot of skilled people out of work 2 – losing the skills and infrastructure to make steel in the future 3 – putting us into a reliance on Korea which they… Read more »
“Do the above come into your equation?” Yep. ” – putting a lot of skilled people out of work” If other people are doing it better then they’re not so skilled are they? So, perhaps they should buck up their skills – which is one of the reasons trade makes us better off, domestic producers have to get better under the pressure of the competition – or go do something else., we’re then better off by the other stuff they do, gaining our steel from those best at making steel. “losing the skills and infrastructure to make steel in the… Read more »
I must admit that I was thinking of military issues,. and the apparent move into economic warfare which China seems to be perfecting. But your responses seem to avoid the obvious issues raised. Putting a lot of skilled people out of work will result in social unrest, and will hand political power to an opposition party, since they will promise to stop it – like Trump. It might be done slowly, as our fishing industry was run down, just leaving desolation and despondency…. Loss of skills is actually rather critical – the concept of the ‘Intelligent Customer’ applies. Look at… Read more »
Th extrotionate cost of new nuclear power plants in the UK is maybe 1% due to Chinese overcharging (other suppliers are available) and 99% down to anti-nuclear regulations.
Steel is a global commodity. It is produced (and consumed) by dozens of countries all over the world. If your country (assuming UK) no longer made *any* steel, and relied totally on imports – primarily Korea – how much pressure do you suppose Korea could apply considering the many, many other sources available? Here is a list of the top 25 global producers of steel. https://en.wikipedia.org/wiki/List_of_countries_by_steel_production As Tim pointed out, the UK has no ability to produce its own coffee, but there is no concern about extortion from coffee growing countries, as it is also a global commodity with multiple… Read more »
“… pay the Chinese for nuclear power now that we have lost the ability, not only to make our own, but even to understand and negotiate about how much things should cost…” Wait, wut? Um, there are numerous thriving nuclear plants here in the US. I know, because my best friend works for the French company that runs around servicing them during off-peak. We have lost nothing of the sort, sir. As to your complaint about steel, the steel industry is so fully automated, it requires little to no skill to “make steel”. This is why picking steel as a… Read more »
The FRENCH company? My case rests…
Complain to the NRC about that one. They’re the ones who put in so many regulations that it wasn’t profitable for US companies to run these operations anymore. They were bought out by French conglomerates who were much more able to absorb those regulatory costs.
That’s all regulations amount to anymore, barriers to entry for small, innovative competitors who would otherwise change the face of a given industry and force the giants to update or lose market share.
Does France pose a national security risk or potential military threat to the UK in your view?
Sorry. While I quite agree with the thesis and the economists to whom the writer refers, I must say: This piece is terribly written. Please seek editorial assistance immediately.