For a guy who despises China, proving it one tweet at a time, Donald Trump sure does like borrowing from Beijing’s playbook. Take the US president’s assault on the free press, a maneuver in the grand tradition of leaders from Mao Zedong to Xi Jinping.
Or Trump’s ploy to build a great wall of tariffs around an increasingly uncompetitive economy. He also is getting into the state subsidy game – $12 billion of aid to farmers.
Now Trump is taking a page from the Beijing policy that’s long irked him the most: currency manipulation.
It started on the campaign trail in 2016, when Trump complained ad nauseam that weak Asian currencies are “killing us.” After one year in office, in January 2018, Treasury Secretary Steven Mnuchin formally declared dead the 23-year-old strong dollar policy.
Things have intensified in recent days. First, Trump complained that undervalued Chinese and European currencies were taking advantage of Washington. “China, their currency is dropping like a rock,” he told CNBC. “Our currency is going up. I have to tell you, it puts us at a disadvantage.” Europe, he said, is “making money easy, and their currency is falling.”
Then, Trump began slapping his hand-picked Federal Reserve chief, Jerome Powell, for raising interest rates. The message for Powell’s team is clear as it heads into a two-day policy meeting ending August 1: tread very carefully. Not since President George H.W. Bush’s day in the early 1990s has a US leader meddled so blatantly with central bank policy.
The dollar matters to more than Americans
President Xi could be excused for branding Washington a bad currency actor – a charge Trump endlessly heaps on Xi. Are global markets ready for the White House to actively sabotage the world’s reserve currency?
Doubtful.
For decades, the dollar has been the linchpin of the post-Bretton Woods monetary system. Since 1995, back when Bill Clinton was president, traders learned to trust a stable dollar as it was in America’s best interest. That remained the conventional wisdom during eight years of George W. Bush and another eight of Barack Obama.
Enter populist Trump, who smells economic victimhood at every turn. Yet two things can be true at the same time. Yes, China has masterfully harnessed World Trade Organization rules since 2001 to increase its market share and influence. It’s also true, though, that the US benefits enormously from a WTO-centric system of its own design.
Trump’s threats to leave the WTO are making Xi’s year. Beijing is still celebrating Trump’s withdrawal from a Trans-Pacific Partnership that had, as one of its goals, containing China’s rise. Trump pulling out of the Paris climate deal and violating the Iran nuclear pact left China looking downright virtuous.
The big risk
But Trump’s desire to devalue the dollar – and by extension, global trust in US debt – could shoulder-check the global trading system.
There are no alternatives. China’s yuan isn’t ready to fill the void. Nor is the euro, backed by a currency union that rarely seems more than a year or two away from crisis. The yen? Not with the Bank of Japan engaged in a decades-long race to the bottom on interest rates.
Trump seems aggrieved that everyone uses the dollar and US Treasuries as safe havens – seemingly for free. Maintaining reserve status, after all, means Washington must run a permanent current-account deficit. What Trump misses is how much Washington benefits from top-dog status. It means the dollar isn’t subject to the normal rules.
If the US didn’t print the linchpin currency, rating agencies would’ve tripped over themselves to downgrade Washington after a $1.5 trillion tax cut the economy doesn’t need. Such epic fiscal irresponsibility, exacerbating a $20 trillion national debt, gets a pass. America maintained its two remaining AAA ratings.
That might change as Trump takes the dollar down the same rabbit hole he accuses Beijing of burrowing into. America’s challenges have very little to do with the dollar. The problem is high wages that are no longer backed up by ample innovation or productivity gains. China’s factories are now far less of a threat to American workers than automation and advances in artificial intelligence.
The more Trump treats the symptoms of waning US competitiveness, the more his legacy will be making China great at the expense of the dollar’s credibility.
A "little" biased, not surprising really but then how many people really understand economics. Oh btw. AI is a threat to workers around the WHOLE world and I’m fairly confident moreso in China.
Amazing what being on LSD does to authors and commenters.
I typically give high marks to AT, particularly regarding economic issues, but this article is ridiculous. Trump can (and obviously does) talk all kinds of smack all the time, but that will have no influence over Powell and the FED.
As long as the US Dollar remains as the world’s reserve currency, Trump cannot escape the huge trade deficits. This is obvious that the problem of trade deficit for the US is systemic and structural and not due to " unfair " trade practices by China , Europe and others when the US is having trade deficits with more than a hundred countries for over 20 years. this is the " Triffin Dilemma."
Navarro’s and others’ visceral hatred for China has blinded them to this economic law or they maybe aware of it but refuses to propagate it to protect the privilege of the US Dollar as reserve currency.
As in all dealings with foreign countries, the US practices an extraordinary degree of dishonesty, gangsterism, breaking of agreements and playing the victim.
Interesting. ☺
I think the US is digging it’s own grave. Trump is now starting a trade war by unilaterally imposing tariffs on its biggest trading partners. Remember America First – also means America Stand Alone.
So far everyone has viewed the US as a benevolent power, who despite having a muddle-headed democracy is still a reliable friend in time of needs. But now Trump is showing us that US is a tyrant and wants to further it’s own economic interest at the expense of it’s biggest trading partners. Trump is basically starting a fight with everybody at the same time. Guess what happens when a rhinocerous charge into a pack of hyenas? The outcome is less then certain I can guarantee you.
" What Trump misses is how much Washington benefits from top-dog status. It means the dollar isn’t subject to the normal rules."
This was the exact reason why the empire was furious and blowing steam when china proposed replacing the dollar with "Special Drawing Rights" to the IMF years ago.
The same logic is happening in the trade war right now. The empire no longer want to recognise china’s status as a developing nation and demand that china trade on an equal developed nation status. At the same time, it (together with the EU) refused to grant china market economy status which was a precondition to china joining the WTO.
So, after getting and gorging on their share of the pie, they now want to gorge on china’s share.
Sigh… some people still don’t believe that the law of gravity.
The US dollar hegemony does have an alternative. I doubt if the US government wants to give up its exhorbitant privilege, however even though our trade deficit is part and parcel as to why. To wit: John Maynard Keynes proposed at the end of WW II that the world develop a world trading currency in lieu of the US dollar. He named it Bancor. It was to be backed by a basket of commodities so as to prevent speculation of just one commodity such as gold. The US was the top dog economically, militarily and politically at the time and wanted to remain there so they at Bretton Woods tabled Keynes’ excellent idea and ramrodded King Dollar.
Today, the US lives with its folly and the ROW is dependent upon King Dollar for over 60% of world trade.
The US keeps telegraphing that they don’t want to be the top dog. They are doing everything they can to change the status quo and make the whole world hate them. But they created this system and could not get out of the hole they have dug themselves into.
I usually agree with William but here his obvious dislike of Trump clouds his judgment. The US has been running a trading deficit for decades and is unable to get its ever increasing national debt under control. It has surrendered its leading position as a tech exporter to China. It relies on East Asia for much of the chips used by US manufacturers.
How much debt can the US carry before it becomes unsustainable? If it can print all the dollars it wants or need, why doesn’t it print enough dollars to make everyone in the US a millionaire? Because global financial markets wouldn’t stand for it.
We may not like Trump or his "solutions" but he is the result, not the cause, of the problems confronting the US.
http://www.atimes.com/trump-is-first-president-to-treat-china-as-equal/
Mr Pesek, is a loser and a Trump hater———–mid way through this garbage I stopped reading!!
The hegemon empire is crumbling from internal disorder and lack of capability like all empires in history.