Currency manipulation doesn’t actually work so well

That is the topic of my latest Bloomberg column, here is one excerpt on the empirical side:

It is also worth keeping in mind a number of empirical points. First, the ECB has not historically been all that expansionary. Rather, it is renowned for a fairly tight monetary policy. Eurozone rates of price inflation are usually below 2%, and that does not seem about to change.

Second, up through the late 1990s, Chinese currency manipulation consisted of keeping the value of the currency “too high” rather than “too low.”  Yet in those earlier times, Chinese exporters still were gaining ground. And since 2005, the Chinese currency has risen considerably — arguably, it has attained the levels one would expect in a normally adjusting market. More recently, the Chinese central bank may be propping up the currency, to limit capital flight from China. That is currency manipulation, but in a manner that will damage Chinese exports, not help them, and indeed China probably is headed toward having permanent trade deficits with the rest of the world.

Finally, countries with low household savings rates tend to run trade deficits, and of course that is the U.S., with savings rates usually below 10% and often as low as 4%. Obviously, if you spend most of your money, some of those expenditures will go abroad, and that will hurt your trade balance. Whether or not you think that is a problem, America’s savings shortfall has little to do with Chinese currency manipulation.

Of course President Trump and yes also Elizabeth Warren are the main offenders here.  Read Warren’s Medium essay on these topics, it is shocking in its crude nationalism: “A Plan for Economic Patriotism.


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