The Trump Administration’s Near Insane New Rules On Trade Balances And Currency Manipulation


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:

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,….

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:

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?”

There being one more thing I would add. It stems from this:

This is for currency manipulators

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?