Trump Should Think Twice Before Flying Off the Handle About China


Donald Trump—or someone speaking for him, anyway—says that he plans to label China a currency manipulator on “day one” of his presidency. Fair enough. China does intervene in currency markets to manipulate the value of the yuan. Unfortunately, Trump might not like what would happen if China decides to call his bluff:

The simple act of calling out China for manipulating the value of its currency to gain an export advantage shouldn’t roil Beijing to the point of retaliation, said Derek Scissors, a China economy expert at the American Enterprise Institute….But slapping retaliatory tariffs on Chinese goods would be more difficult because it would require congressional approval — a problem given that Republican leaders have been opposed to legislation to punish Chinese currency devaluation with duties, Scissors said.

There’s also the question of whether China is actually devaluing its currency. Most economists agree Beijing intervenes heavily in its currency markets, but in recent years has actually been propping up the value of the renminbi rather than lowering it.

Hmmm. Here is Brad Setser:

The monthly data suggest China has not bought foreign exchange in the market to keep the yuan from appreciating in the past 6 quarters or so, only sold. Its intervention in the market has worked to prevent exchange rate moves that would have the effect of widening China’s current account surplus over time. Every indicator of intervention that I track is telling the same story.

….If China stopped all management (“e.g. manipulation”) and let the yuan float against the dollar, China’s currency would drop. Possibly precipitously. China’s export machine would get a new boost. And rising exports would take pressure off China’s governments to make the difficult reforms needed to create a stronger domestic consumer base.

In other words, right now China’s currency is overvalued. If they weren’t manipulating it, it would most likely have fallen even more than it has—something along the lines of the chart on the right. This would mean Chinese imports get even cheaper, American exports get more expensive, and the trade deficit increases. This is exactly the opposite of what Trump wants.

Demonizing foreigners as the cause of all our problems is apparently a good campaign tactic. Dealing with the real world is a little different. Hopefully Trump will talk to a few actual economists and trade experts before he makes good on this particular promise.

THE BIG QUESTION...

as we head into 2020 is whether politics and media will be a billionaires’ game, or a playing field where the rest of us have a shot. That's what Mother Jones CEO Monika Bauerlein tackles in her annual December column—"Billionaires Are Not the Answer"—about the state of journalism and our plans for the year ahead.

We can't afford to let independent reporting depend on the goodwill of the superrich: Please help Mother Jones build an alternative to oligarchy that is funded by and answerable to its readers. Please join us with a tax-deductible, year-end donation so we can keep going after the big stories without fear, favor, or false equivalency.

THE BIG QUESTION...

as we head into 2020 is whether politics and media will be a billionaires’ game, or a playing field where the rest of us have a shot.

Please read our annual column about the state of journalism and Mother Jones' plans for the year ahead, and help us build an alternative to oligarchy by supporting our people-powered journalism with a year-end gift today.

We Recommend

Latest

Sign up for our newsletters

Subscribe and we'll send Mother Jones straight to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate

We have a new comment system! We are now using Coral, from Vox Media, for comments on all new articles. We'd love your feedback.