Trump's 1st 100 days

The WSJ is skeptical about Chinese currency manipulation being a real issue:
Movements in the nominal yuan exchange rate have almost no long-term impact on global flows of exports and imports or on broader considerations such as average wages.

The exchange rate that matters for trade flows is the real exchange rate, i.e., the nominal exchange rate adjusted for local-currency prices in both countries. The real exchange rate, in turn, reflects the deep forces of comparative advantage such as technology and endowments of labor and capital.

These forces drive trade regardless of monetary policy. Think about the companies involved in trade. Yuan depreciation tends to be partly offset by Chinese companies raising their yuan prices.

A large academic literature has repeatedly found that profit competition among a country’s exporting companies typically undoes about half of that country’s nominal exchange-rate swings. Today more companies operate in global supply networks—in which trade and investment link different stages of production across different countries.

Because these networked companies incur both revenues and costs in many currencies, their trade competitiveness tends to vary little with the movement of any one currency. Long-term movements in nominal exchange rates often have nothing to do with the evolution of global trade flows.

In the generation after the Bretton Woods system dissolved, the dollar steadily depreciated against the Japanese yen, from its fix of 360 yen per dollar to an average of just 94 in 1995. Over that time did the U.S. swing into a massive trade surplus with Japan? No. From $1.2 billion in 1970 the U.S. trade deficit with Japan rose by a factor of 50, to $59.1 billion in 1995. From 2004 to 2014 the dollar similarly depreciated—note, not appreciated—against the yuan by about 25%. Over that decade the U.S. trade deficit with China soared—not fell—from $161.9 billion to $342.6 billion.


  1. Your posts are getting pretty long, Jim. For those of us with a short attention span, can you just have that Cliff guy help us and just put in Cliff's Notes?

  2. You want short, go for his Twitter feed, no? :^)

    Seriously, the "currency manipulation" theme is getting old. Do none of these people study economics enough to realize that if you set your currency low, it's easier to sell goods, but harder to buy them, and vice versa? It's not as if people like George Soros will ignore this fact for a long time and fail to profit from it.

    Walter Williams puts it best in my view; other countries doing stupid things with their economic policies does not excuse our government doing the same. Let the Chinese shortchange themselves by setting the Yuan too low.

  3. Cliff's Notes? Don't you mean Cliffnotes?

  4. Skepticism about currency manipulation being a real issue? That seems like an odd statement, since we all know there are currency wars going on.

    By the way, the Cliff Notes reference was a joke.....Or was it? Something weird is going on. Look it up.

  5. Anon, regarding currency, read the article. Or simply contemplate; currency manipulation is like arguing that doubling the number on your paycheck while simultaneously doubling the numbers on all your expenses changes your financial position. In reality, it makes no difference.


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