Donald Trump doesn’t like what he calls China’s “currency manipulation.” He outlines his dislike for China’s monetary policy in today’s Wall Street Journal and presents his plan to address that “manipulation” on “day one of a Trump administration.”
I’ve taken the liberty of editing some of Trump’s op-ed to present the opposing and positive side of China’s currency policy, here’s my version:
New Title: “Ending China’s Currency Manipulation Generous Subsidy of American Consumers and Businesses”
New Sub-title: “China’s de facto tariff on imported goods appreciation of the US dollar has cost saved the U.S. billions of dollars and supported millions of jobs.”
Revised Text: Economists estimate that the yuan is undervalued US dollar is overvalued anywhere from 15% to 40%. Through manipulation of the yuan appreciating the US dollar, the Chinese government has been able to tip the international trade balance in their direction our favor by imposing a de facto tariff on all imported goods selling American consumers and businesses imported Chinese goods at a 15-40% discount. Imagine the favorable impact these trade practices and low prices have had on our weakened manufacturing base, our agriculture industry and every small business unable to compete internationally. nation’s consumers, businesses, and manufacturers.
Unfortunately, deal-maker extraordinaire Mr. Trump wants China to stop giving us such a good deal, and plans (if elected) to impose new taxes on Americans buying products from China…..
To end China’s policy of selling Americans merchandise at a 15 to 40% discount, the U.S. Treasury Department will designate China a currency manipulator on day one of a Trump administration. This designation will trigger a series of actions that will start the process of forcing Americans to pay higher prices by imposing countervailing duties on American consumers and businesses who buy cheap Chinese imports, defending burdening American manufacturingers, businesses, and consumers who buy goods from China and preserving destroying American jobs. I do this not because it make sense economically – after all, who doesn’t like low prices and the opportunity to get a 40% discount from a seller – but because it sells well politically and is a great way to generate support for my campaign.
MP: As I’ve pointed out before, the “manipulation” of China’s currency (i.e. appreciating the US dollar) is actually to the distinct advantage of millions of American consumers (especially low-income Americans) and U.S. businesses buying products and inputs made in China. Those two groups certainly aren’t complaining about a stronger dollar and low-priced Chinese products, and in fact would be made worse off if they were forced to pay higher prices from Trump’s proposed trade policies. After all, the countervailing duties (i.e. taxes) would be imposed not on China, but on American consumers and businesses who buy Chinese goods.
To summarize:
1. China’s currency manipulation is a form of foreign aid to the US, and is specifically to the direct advantage of millions of U.S. consumers, especially low-income groups, and to the direct advantage of thousands of American companies and manufacturers (and their employees) buying inputs from China.
2. Like other forms of mercantilism and protectionism, imposing tariffs and duties on “cheap Chinese imports” would favor certain domestic producers over millions of consumers and import-buying companies, but would make the United States worse off, not better off, on net.
3. Instead of complaining, we and Mr. Trump should be thankful for China’s foreign aid to Americans through a strong dollar, and for the undervalued goods that collectively save American consumers and companies billions of dollars every year (see Venn diagram above).
Bottom Line: Assuming that Mr. Trump wouldn’t object to China (or any other country) sending products to the United States for free, then on what basis could he object to currency “manipulation” that allows Americans to purchase undervalued Chinese imports at a steep discount of up to 40%? Mr. Trump views himself as the quintessential deal-maker, but he’s apparently overlooked what might be the most effective strategy for dealing with China: Never interfere with a trading partner when they are doing you a favor.
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