Country isn't 'stumbling' into a Trade War. It is being swept into one not by the President's choices but by the Resist Trump World Wide Movement. Xi cannot be seen as giving in to Trump when the whole world expects all to Resist Him. Xi is cheered on by half of the United States who just want to see President Trump fail. It will be a brutal and hard slog but it does have to happen eventually unless China Chooses to change their behavior. That is a choice they cannot make in the current environment so Trade War it will be.
1
We have a idiot that thinks he knows it all taking advice from another moron, namely Kudlow. The damage that trump is doing to the world’s economy will be enormous and the democrats will be left to clean up the mess AGAIN.
If the US Dollar loses it’s place as the international currency standard the results will be very bad for us. Make no mistake about it, there are many who are actively looking to replace the Dollar as the standard.
Please don’t reply with a comment about how many dollar bills are in circulation, that has nothing to do with banking that actually deals in abstract dollars that are really just numbers in a computer program.
Try getting $20,000 cash from your local bank on the spot, they won’t have it, you’ll have to order it. Ignorant people don’t seem to understand this, the airlines don’t show up at Boeing with trunks of cash to purchase a $100,000,000. airplane, it’s just numbers in a bank account.
1
SCMP (South China Morning Post) just published a story today that IMF declared China is not a currency manipulator due to its action to defend RMB in 2018. On the other hand, Chinese government also said today that the central bank will hold the exchange rate steady and is in control of its variation. This statement seems to hint that China could use its currency to defend its country if Trump adds more tariffs on Chinese goods. Sooner or later Trump will make an agreement with China before election to please his base supporters. In the meantime, we all suffer by paying more.
It's the word TRADE!! What does it mean? Two parties agree to "trade" things. Right? One thing for another. No advantage to either party!! That's call "trading." Both parties gain.
1
The best way to prevent war is to encourage trade. Countries that trade don't fight each other on the battlefield. The last time an isolationist President did the same thing we had WWII. Does anyone think we can afford WWIII?
1
@James Wallis Martin
Not sure which President you're referring to. If you're citing Hoover, after a close look at his beliefs, policies, international experience, etc., one would be hard pressed to classify him as an isolationist. Many of the policies he advocated as President were actually stonewalled by Roosevelt during Hoover's lame duck period, only to be adopted by and credited to Roosevelt later. It was also a profoundly isolationist period in US history making it hard to blame the President who was and is neither as all powerful as many believe and some Presidents would like. Hoover was opposed to the Smoot Hawley tariffs, but (arguably) unfortunately caved to pressure from his own party and signed the bill. Completely agree with encouraging trade but the history of the times is a lot more complex than simply blaming an "isolationist President".
3
@James Wallis Martin: Germany and Britain were each other's largest trading partners just before they went to war in 1914,
1
“The dollar being the primary global currency has enormous benefits for the U.S., but with the side effect that when the U.S. tries to depreciate, there are limits on how much it can do that,” said Adam Posen, president of the Peterson Institute for International Economics. “But if the U.S. abuses its privilege too much by bullying, there will eventually be a switch.”
Exactly. No country can remain the custodian of the world financial order if it starts misusing its position by bullying.
2
@Erik Skamser This may be true, but every time I read/hear someone say that the world could switch from the dollar to something else as the primary reserve currency, I must ask: to what? The Euro? With Brexit looming, the future of the Euro is in at least some doubt. The yuan? Really? Would you want your savings account or 401(k) valued in yuan? OK, how about crypto (Bitcoin, et al)? Twitter, that bearer of gifts, has perfectly encapsulated crypto for me, calling them "Ponzi tokens."
There are some great comments posted here. I guess the issue is that the economy is tested by various factors, but it isn't normally tested by a president who tries to manipulate it himself for his own gains. This, as many post here, is scary, very scary.
If, by some miracle, trump doesn't destroy this economy, and it manages to rebound, it'll mean that it really does have some strength. But right now, we're in the James Dean-style game of chicken in "Rebel Without a Cause" as trump races us to the edge of the financial cliff.
Well, Republicans think that Republicans run the economy well. And trump supporters believe that trump is a great businessman. It's all smoke and mirrors. That cliff is going to come up real soon. Better jump from the trump economic jalopy.
6
45 has never been a long term strategic thinker. He acts on impulse and his first impulse is always to bully and frigethen. His only goal is to maintain political power for his own self-presavation. He knows if and when he leaves office, he will be a target of multiple criminal charges and possible conviction. He does not care about anything else. He is not capable of focusing on anything otherwise. There is no one in his orbit that can speak to him rationally, because he is irrational and they know it. He is the most dangerous man in the world, because he is the most desperate man in the world.
5
And the Republican party is fine with this! In exchange for their own personal wealth and the ability to openly express racist and misogynistic ideas, wrecking the world economy is a minor inconvenience.
5
Not an economic genius by any stretch, i can still easily follow the path to a potentially massive financial fall awaiting us that this narcissist neophyte is paving for us. Every student of economics 101 had to study the costs-benefits of different economic approaches (capitalism, socialism, communism, guns vs butter) and tools (fiscal and monetary policies, tariffs.) The main thing was BALANCE and trying to achieve some equilibrium on micro and macro economic/financial levels that would do the least harm in the search for growth.
In this situation though, you have a deaf, dumb and blind guy who has no interest or clue re the ramifications of his winner takes all mentality. His mantra is imbalance vs balance. And indeed, as many here have noted, his excellent record at "dealmaking", bankruptcy, stiffing and conning others, and disrespect for contracts make clear to us what the end game here might be. After all, what does he care if he leaves behind a wrecked and imploded country? A more unhinged and insecure global arena that's already creaking under the weight of severe climate influences, unemployment, automation, robotic development,wealth disparities.
That's his norm.
As he has said, "so what? All that will occur after I'm gone." Spoken like the true "stable genius ", economic whizz, and moral giant that he is. Only worse - his followers and enablers. THAT we might be able to do something about by getting rid of him and overturning the senate in 2020.
5
What a change from Obama who took the view that a rising tide will lift all boats to Trump who likes to bully and break things.
I'd be interested to know more about global views on Trump's strategy. Are nations hanging on hoping that a change in administration comes next fall? Will they begin to look elsewhere for economic leadership if he wins re-election? How long will our allies be willing to put up with this economic whiplash?
Right now it seems that many nations are willing to allow China to bear the brunt of Trump's ire. But what happens when he tires of kicking China? When do all these other countries band together to stiff arm Trump (and by extension the US)?
3
Currency depreciation, low price of money capital, slow growth, and low interest rates reflect the low rate of profit in the industrial sector of the major economies. Lack of investment in industry is explained this way. The stock market will come later because there is always a time lag for this phenomenon to appear in the financial sector. Nothing anyone could do about except blaming others for it. But capital is naturally looking for the restoration of profitability via the destruction of inefficient capital (regardless of impact on climate)
2
If the dollar being the primary global currency is so beneficial, then the benefits should be quantifiable in dollars. As it stands, the only apparent benefit is that American products cost more than anyone else's. Every country is free to adjust their exchange rate at their convenience, except the US. The world economy should be able to function on its own, as the United States can not afford to prop it up any longer. A walk through the homeless encampments that line our city streets should be sufficient evidence of that.
3
After we exhaust our China credit card, perhaps Trump can negotiate a loan from Russia.
5
I don't know what everyone is worried about, I'm told Putin is especially clever, after all he got Donnyboy installed. I'm sure he's looking after our interests.....
As a matter of successful economic policy in the past, the United States, Wall Street, The Treasury Department and the Presidency and his cabinet worked mostly in a coordinated, well researched, and financially practical manner for its success and the economic progress of its Allies.
With the Trump presidency, that is no longer true. I'm afraid of the economic consequences if he's elected to another term. Very afraid.
3
Legendary american journalist H L Mencken once observed that “Democracy is the theory that the common people know what they want, and deserve to get it good and hard”. Well that’s happening big time. He also predicted “on some great and glorious day the plain folks of the land will reach their heart's desire at last, and the White House will be adorned by a downright moron”
How prescient!
17
@John Townsend
Direct democracy is choosing government policy the same way we choose Top 40 radio hits or viral memes--purely by popularity.
1
@MikeM When EVERYONE participates in direct democracy - we get a better decisions / by the crowd. The representatives are too concerned about their re-elections.
@Tamza "we get better decisions/ by the crowd. Hmm. Nope. Please read "Extraordinary Popular Delusions and the Madness of Crowds " written 1841.
Eventually, the rest of the world will turn to another currency because a solid 40 percent of this country is undereducated or just plain willfully stupid. trumpies refuse to see that everything this man does is designed to lessen US influence in the world. While he tweets, China is expanding its presence in Latin America and Africa. Russia is scurrying to claim Antarctica’s vast resources for itself. We are no longer a superpower. Our allies have lost trust in us. trump has hastened our decent into mediocrity and his supporters are clueless.
20
Most former presidents were not Rhode Scholars in Economics but at least they surrounded themselves with financial experts in the field.
The paramount difference between them and this guy is they knew when and who to rely on for intelligent, experience, knowledge and expertise. This guy keeps bringing monopoly money to the table, not recognizing the difference between play money, MY money and everyone else's money.
While I continue to worry about the environment, this guy's absolute ignorance of world economy and finances keeps me up at night. As one astute commenter stated, "We are headed to financial ruin, if we give him 4 more years to ruin our economy the way he had all his other businesses." Thank you EPMD from Dartmouth, MA.
19
@Marge Keller This is the most astute comment I have read. It's Trump narcissistic belief that he knows better than all experts on all subjects is what frightens me. That and the fact that he doesn't understand policy, only politics, and makes his decisions accordingly. Four more years of Trump will devastate this country and possibly the world.
1
What did anyone expect? We put the country's welfare in the hands of a man who bankrupted just about every business he ever started except his golf courses and a couple of hotels, both more on the recreation side than a business.
9
trump is playing with fire when he naively and recklessly blacklists and imposes tariffs willy nilly. He is blind to the plain fact that pulling out of the TPP isolated the US and gave China an open field to play in. Any decline in China GDP due to trump ill-conceived shenanigans, they'll more than make up elsewhere. Playing "tough guy" reckless trading games like this with america’s largest debtor nation with considerable global financial clout is perilous stuff. Already Chinese investment in the US has plummeted by nearly 90 percent since trump took office (notice how FOX news ignores these things). As these developments mount a consequential disastrous effect on the economy at some point is imminent and will be well beyond the grasp of the stable genius to manage let alone control.
1
No worries! The Don's a stable genius! He's all over it! He's got this one!
2
Would economists stop treating Donald Trump as someone who knows what he is doing? someone who is normal and has any logical reason or rationale in his actions? someone whose tweets or statements or decisions can be dissected as you would any other president?
Why bother? Donald Trump is dangerous because he is not rational - he has gotten worse since January, 2017.
4
Trump cares about only one thing - ‘winning!’ He is convinced that low interest rates, cheap dollar, declaring China a ‘currency manipulator’ (the one thing they are no longer guilty of) and casting himself as superhero ‘Tariff Man’ will get him elected in 2020. Whatever the consequences - as long as they hit after Nov. 2020 - he neither understands nor cares.
2
@van schayk
Agreed all Trump cares about it is winning - but it is narrower. Winning for him, forget about others. That is disastrous for our country. He has no idea or cares little about anyone else but himself.
3
The latest move threatens to upset a relatively stable financial order. Why any surprise? Look who's doing it. Mr. Chaos maker himself!!
1
"Currency wars are easy to win."
DJT
1
@albert
And nobody goes broke building casinos--businesses where people just hand you money.
1
@Mike one at least one casino went bankrupt by DJT
At least the British can say we did not elect Boris Johnson.
2
Trump is such a brutus ignoramus, impulsive to no end, thinking (Uh!?) that trade and tariffs are child's play. Of course, he would not be familiar with the nuances of his irresponsible blabber, self-centered as he is. Some of us do read a bit, and accept the chaos theory where the "Butterfly Effect" remains a most interesting 'fact'. You already mentioned the effect of Trump's stupidity, when nations distant to China, the country Trump intends to punish, are taking their own precautions. Although none of us had much to do with the creation of uncertainty, we all shall pay for it, make our lives more treacherous and expensive. And for what, exactly?
1
Gee ... and we all thot that trade wars were easy! At least that's what the stable genius led us to believe. I guess we're in for another dose of trump style socialism with yet another (3 and counting) $16 billion bailout for farmers!!! Alas the Blue States are having to bail out Red States for the decisions of a president elected by the Red States
1
I predict that this "currency war" will eventually result in worldwide inflation in the next 1-2 yrs. which will be very difficult to stop. Hopefully Trump will be out of office in 1.5 yrs. so the FOMC can raise rates to stem that tide, but if Trump wins reelection he could stop the Fed from doing its job which could lead to a global financial meltdown.
1
Just maybe Trump is simply Putin's agent, doing what he can to damage the United States.
But in all seriousness, look at this thing from the perspective of the Chinese. They have developed a philosophy over thousands of years that ideas are not the property of anyone. The West developed the concept of the patent maybe 500+ years ago and in the US, we brought in the concept of patent law in 1790. We recognize Intellectual Property rights and they do not. I'm not saying one is right and one is wrong, but the question comes down to "Who's rules do we live by?" The Chinese want to live by theirs and we want to them to live by ours. I don't see us forcing them to change their ways. It seems to me that going forward, we better understand whether we like it or not, that the Chinese will not recognize intellectual property rights, no matter what they say. As such, this trade war is not going to accomplish anything. I'm not saying surrender, but conduct business with them differently. We aren't going to squeeze any more concessions out of them. That would almost be like telling them they can't speak Chinese any more.
2
When our central bank, The Fed, lowers interest rates it is also manipulating the value of currency. We need to compare and contrast.
4
It strikes me that the Trump tariff trade war is in line with his other "disruptive and destructive" policies such as attacking NATO and pulling out of the Paris Accord, In some ways these are just suggestive or psychological moves, but taken in their totality make the US seem a far less respected and acceptable partner,
Currency games and further economic instability make the US far less reliable for the future, At what point does a Trumpist America simply become an unacceptable leader or partner? At what point does the world lose confidence in the very veracity of this country? Another round of chaos another set of treaties unilaterally rejected?
Dangerous waters folks, think about that in 2020,
12
Putin smiles.
12
The sky is falling! The sky is falling! Well it could be. You never know.
Blah blah blah.
@In deed "You never know. "
Oh yes we will ... and soon!
The president is strategically weakening America. I believe this is intentional.
18
Maybe this is just a shot across Trump's bow to let him know what's in store in the election run-up if he doesn't begin to play nice.
2
We are about to see what happens when the U.S. voters put a person of incredible ignorance and low intelligence in charge of one of the world's most powerful economies.
27
How horrible that the current crisis, which will likely hurt hundreds of millions in the US and around the world, is the result of one’s man’s incompetence, not a thought-out policy by a team of advisors with a plan. I might or might not agree with such a plan, but at least there would be some coherence instead of this flailing.
8
All Trump can do is whine about how unfair everyone else is to the poor old USA. Whatever happened to the country’s can-do spirit? It’s been swallowed in the black hole of Trumpism!
15
“Stumbles”? You all were warned, Mr. Business of Business Guy. Try to legitimize Trumponomics now. Thanks for playing though.
4
Currency valuation has been debated forever. China’s behavior in particular has been scrutinized. The consensus seems to be, as the article suggests, that China manipulated its currency to favor exports more in the past and less in recent years. Now that they have hundreds of millions of consumers, a more balanced approach seems logical.
But that, of course, was before tariff man took office. And since Trump seems happy to tax American consumers and subsidize American farmers so he can war with China, why wouldn’t they war right back to keep us importing from them while stopping their importing from us?
The bigger threat to our economic interests long term, in my opinion, is that we are making it imperative to other nations that they find a replacement for the dollar as the world’s reserve currency, and sooner rather than later. No doubt our opponents and rivals always chafed under our financial domination. But now our friends and allies realize that their political independence from us is threatened by our willingness to use of the dollar to extort them to serve our unilateral interests. And as with any other bully, I’m sure they will logically seek the to limit our power to injure them and perhaps not so secretly happy to take us down a few notches. After all, hard as it is to imagine, American bullying could get even worse.
16
"Did China allow the value of the yuan to fall against the dollar simply to allow it to better match the nation’s economic situation"
Oh gosh. Much simpler
The Chinese decided to pay Trump's tariffs.
To keep their US market share.
1
The rest of the world has moved on. We can no longer say we are the leader of the free world. That ship has sailed. Thanks Trump, Republicans, Fox and Talk Radio.
11
Thanks to Trump, the US has lost is credibility. When and if he leaves office, who knows how long, if ever, we can gain it back from our World partners.
4
"....Actually, throughout my life, my two greatest assets have been mental stability and being, like, really smart. I went from VERY successful businessman, to top T.V. Star to President of the United States (on my first try). I think that would qualify as not smart, but genius....and a very stable genius at that!"
In the coming years, Trumponomics will deserve it's own chapter in the economic history books and it won't be a favorable reporting of these times.
12
Trump has already reduced the size of the Chinese trade surplus, vis a vis the United States. He is doing an excellent job of dealing with structural issues, that have handicapped our nation's ability to feed our children after we lose the reserve currency. Trump is showing a remarkable foresight as to what could happen, if we lose the ability to print viable currency, without having the means of production in place.
3
not a trump fan but there may be some truth to this
I am not an economist and I cannot speak for these learned pundits who let South America / Middle East and Africa and even Asia stay in poverty and now back streets on USA added their name to that list.
I do see China's influence in creating this populist tragedy being cooked by Trump Administration too.
What I do not see what will lead all of these grieving poor people across the spectrum to earn a fair wage and their livelihood not being stolen by slave labor forces.
1
The trade war with China has been going on for two years. Farmers are suffering, some irreversibly. Who is winning?
And what is the exit strategy of this war, 'Stable Genius'?
7
Trump’s playing with the world’s economy has an eerie resemblance to the breach of protocol that took place during a simulated power outage safety test at Chernobyl in April 1986. Testing at the extremes to gauge the effectiveness of built in safety systems resulted in a total collapse of the nuclear reactor. We can only hope that this destructive behavior on the part of Trump can be stopped in its tracks by cooler heads with the expertise that is in such woefully short supply in this administration
5
The Republicans are unraveling and destroying everything this country has accomplished in the last 100 years. The dollar has been the foundation of America’s success since the end of WWII. Republicans are failing at making America great again. They p, however, are succeeding at removing the great from the equation, perhaps permanently.
4
How on Earth this below can even be a question, how immensely naïve one has to seriously consider this … only on the pages of China-forever NYT.
"Did China allow the value of the yuan to fall against the dollar simply to allow it to better match the nation’s economic situation, as the country’s leaders and many international economists argue? Or was it, as President Trump contends, an effort to give Chinese exporters an unfair advantage in trade?"
Rule #1. When 2 bullies meet to cut the turf only 1 walks away.
rford: Not necessarily: may be that neither bully walks away, or at least neither walks away unscathed.
In the eyes of many Nations, the US has abused its dominant role in the world's financial system to her financial gain to the detriment of other countries.
5
Possibly a related topic - I had read somewhere that Iraq had started planning to stop trading in US dollars, just before ‘we’ decided to invade. Never could get that story confirmed. .
2
@David
That was stop "trading OIL (crude oil) in dollars," which has always been the world standard currency for crude oil standard.
1
As an American, it is painful to witness the President undermine our nation’s credibility on the world stage, at the same time that he undermines our ties with our allies and cozies up to Moscow. The world governments knew Trump lied when he declared national security to justify imposing tariffs on our allies. They realize that after backing out of two major international agreements on climate change and Iran that agreements with the USA may or may not stand by its word any longer. The world is witness to his daily lies and name calling. To pretend any longer that Trump has credibility is to continue destroying our nation’s credibility which at one time, though not perfect, was something every American could be proud of. People are smart to not trust proven liars and shirkers. The world realizes the USA credibility can not be looked to any longer as a reliable partner internationally in economics, relations and politics. The world will not believe Trump’s tweets that China is a currency manipulator because we all know he is a liar and liars are never really ever trusted again.
5
What if displacing the US (or, really, any broadly rule-driven entity) from a core role in international finance is not a bug but a goal of the Administration's approach?
Trump and his ilk are fundamentally corrupt kleptocrats, with a Hobbesian "get mine" worldview with intellectual roots in Godfather movies as opposed to dry old economics and law. As in, the only virtue is corruption. While I doubt that Trump is in any way systematic, I don't doubt that his goal will always be more money. Given that he sells nothing but "branding", an anarchic system is really the one that pays best.
4
For all you retired Trump supporters ... how’s you’re 401K doing? Trump is in over his head and we’re heading into a recession. Every time republicans are in power ... our country goes into a recession but this time the US could go over the Trump cliff !
9
Trump has a warped view of the global economy in that he sees it purely as a zero gain where one country's gain is another's loss.
There's no sense of common purpose...he doesn't see the benefits of shared growth, such as a more stable and peaceful world.
5
Does Trump know what reserve currency is?
4
China should never have been allowed into the WTO with a currency that is not freely convertible. This situation makes them ipso facto currency manipulators and invites them to use it as a tool. Only now have they felt it advantageous to wield that weapon. It’s too late now to undo the mistake. Stand back!
3
Putin is definitely getting a great return on his investment
7
Who knows. Years from now maybe Trump will be recognized as a hero for unwittingly crashing the world's economy, thereby drastically reducing carbon emissions and saving the planet. :)
5
It seems that everybody wants to influence public opinion, to the point that it's tough to know what's real and what's fake on the internet. Stock market indices and currency exchange rates are one way to assess the severity of this manipulation. For one thing, I keep hearing about tariffs and rumors of tariffs, but until I see a big honking dog-leg in the $/Yuan exchange rate, I prefer to think that it's all a bunch of nonsense.
The guy who bankrupted two casinos is trying his hand at America.
6
Interesting and knowledgeable comment by Neil H Lebowitz, who looks back at the trade policies in the 1920 and 1930
I recommend to readers interest in learning more about those to read Peter Drucker
https://www.economist.com/special-report/2001/11/03/the-next-society
Very much simplified, the US switched in the 1920 from open trade in agricultural goods, to a system regulated by import tariffs and quotas, to protect its agricultural industry - deemed essential to National security, even though it entailed prices on farm goods to consumers (The 10% ethanol in your gas you fill you car with would be cheaper could it be imported under free trade from Brazil). Free trade was replaced by negotiated bi-lateral treaties
Peter Drucker, in 2001, predicted, accurately, why this switch from free trade, to a tariff regulated trade system had to spread to manufactured goods.
And that is what is happening now.
----------
Peter Drucker was management consultant, educator, and author, whose writings contributed to the philosophical and practical foundations of the modern business corporation.
2
It’s not surprising that Trump is wrong about the trade deficit.
But so are most people.
They hear the word ‘deficit’ and they think that must be bad.
So what is a trade deficit?
It is a situation where other people/countries are giving us more goods and services than we are giving them.
That’s the ideal economic situation.
The rest of the world is essentially working for us.
It only requires the appropriate fiscal policy to make up for the financial outflow from the private sector to keep everyone employed.
If we could simply get over our fear and misunderstanding of the word ‘deficit’ we would have an era of prosperity the world has never seen.
And no. Our grandchildren wouldn’t have to ‘pay for it’. That’s just another misunderstanding.
Instead, it’s the best thing we could do for them.
Our grandchildren will not benefit if we reduce ourselves to the level of China just so we can say we have ‘trade surpluses’.
Every deficit is the other side of a surplus.
Government deficit = our surplus.
See MMT.
6
The "stability" of the past few decades has hurt the US badly. Trmendous wealth has essentially moved from the US to China. Allowing the current trend to continue has severe negative geopolitical consequences for the US as well.
So yes, it looks very messy right now, but the world has now woken up up to the realization that depending on state controlled capitalism ( China) is too risky, as it eliminates foreign compeitition. Supply chain is already moving away from China rather quickly, although it is not possible to do it completely, nor is that the goal.
Short term pain, readjustment, and rturn to a new normal. The article catastrophizes on the prospect of the Us lowering its currency value....the catch is....that hasn't actually happened.
Remove tariffs from all of our trading partners....except China...bring them on.
2
I guess a trillion in stimulus and multiples of trillions on QE I and II and massive subsidies to ag and fossil fuel have nothing to do with “State controlled capitalism”. Funny, that. You got your tariffs. Now you can’t sell your soy beans. Good luck, tho.
5
@Mark
TPP does just that! But Toxic Trump just didn't get it.
1
@Joe B.
In no way, does our entrepenurial country represent what happens in China to their entrepeneurs. China really has state controlled capitalism in a way that is completely the opposite of our system in the US. An ideological clash with serious implications for the globe's immediate future.
QE and stimulus largely derived from the global crisis related to mis-valuation of sub-prime mortgage investments. As a reminder, behind the scenes, our Federal reserve floated 15 TRILLION to the EU behind the scenes in loan guarantees and currency swaps etc. Coal and fossil fuel use is quickly declining in the US. Soybeans store for a long time. If China is our only Soybean customer than we can feed other producers ( like Brazil) through the back door. Otherwise, that product may simply need to shrink for us as a market.
It is time to face the mujsic or capitulate. Plain and simple.
How will this currency war affect those Americans who today are living from paycheck to paycheck despite the Trump/Republican tax cut which helped the top 1% and corporations get richer but apparently did little to help the majority of Americans who have seen their purchasing power and income stagnate or decline?
12
Unintended consequences usually result from any policy move, more so when the policy is ill considered as is the norm for the current administration.
15
Shocking that there is no mention of prominent economists who disputed the allegation that China is a currency manipulator in this round of trade-war action. They include the likes of Paul Krugman and Lawrence Summers.
China is in fact keeping the renminbi higher that if it's allowed to float free, exactly the opposite of what it is accused of. China's was sending a signal to Trump: enough is enough. It's a one-day event, so far. However, if Trump continues to listen to the China hawks Navarro & Pillsbury, this can really spin out of control and become a huge global disaster.
43
@Observer Trump and his ill-conceived ignorant policies are already a "huge global disaster". How much damage will he do to the world economy in his remaining months?
3
If the dollar starts to rise against other currencies, how will that affect the stock market, particularly those stocks that might be favored by Trump?
8
@Leanne Tighten your seat belt. We are about to find out the answer to how Trump's policies will affect the stock market.
1
The world economy has been moving along with admirable global growth until Trump comes in, alienated his allies and sparked a trade war. This is a self-inflicted sabotaged economy and begins to look like Trump's five bankruptcy casino. The difference is, this time it is the national treasury money.
73
@SK Actually Trump has some points as he fumbles the global economy. The US has been a global trade doormat in many international trade agreements the last several administrations have entered into. But his misuse of the economic sledgehammer, called the tariff, is historic in it's utter destruction of the global economy. President Tariff will bring the global economy (as we see three more countries lower their rates today) to it's knees. Trump's simplistic command of economic theory (if any) and his utter lack of reasoning will bring on yet another Trump bankruptcy, this time a bankruptcy of global proportions.
26
@Bo Baconator
Trump is incompetent, yes. But we negotiated good treaties to prevent that in the future, especially TPP. Obama left us in great shape, not just the economy growing for 8 years, but the treaties to help continue that growth.
Trump blew it all up.
It took Baby Bush 8 years to destroy the economy, but Trump is even dumber, so he's got a short at doing it in 3!
6
Nothing would be more fitting than having Trump, the person greedy sociopathic Republicans support whole-heartedly, wrecking the economy that so benefits the 1%.
Of course a lot of us peasants will suffer but misery loves company and I so want the titans of Wall Street to reap the whirlwind.
16
@Adrienne
How much more can we suffer?
1
Trump makes decisions apparently in a counter intuitive fashion. If circumstance dictates a left turn, Trump goes right. Since he does not comprehend what he is doing, his agents are not known for being at the top of their currency game. Trump’s administration is like a speeding car on a mountain road. Sooner than later they will miss a corner.
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Is it possible that with US behaving more and more quixotically under Trump, Special Drawing Rights will displace the US dollar as the reserve currency?
That would prevent US from using its clout as a reserve currency to place economic sanctions on any entity that disagrees with its diktats.
Iran would be able to bypass the crippling economic sanctions that US has imposed on it for so called breaching the treaty to limit nuclear proliferation whereas it is the US which has unilaterally pulled out of the treaty.
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@Meenal Mamdani
The abuse of the dollars status as a reserve currency and the preeminence of the US banking system by the unrestrained use of sanctions will itself drive the world to adopt alternatives that will cause lasting damage, undermining the significant benefits we now enjoy. To be sure, prior administrations have taken advantage of that preeminent position to impose sanctions but on the whole with the concurrence of the international community. The creation of a crisis by unilaterally withdrawing from the Iran nuclear deal and then imposing sanctions opposed by and damaging to our allies undermines international confidence in the US financial system and will lead to long term economic damage.
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Why do you even try to give Trump's ignorant tantrums an air of respectability? Just say outright that the man clearly doesn't know what he is doing, doesn't understand economics, and has introduced even more chaos and instability into what is already a highly volatile system. Stop saying things like "consensus". That suggests that there may be some credible arguments for Trump antics that are, nonetheless, the minority view. This seems largely untrue. No respectable economist thinks that Trump knows anything about what he is doing. Even the entire trade war is based on false premises and misunderstandings of the fundamentals of the world economy.
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@Shaun Narine - You're absolutely right. The same goes for whenever Trump reads a prepared speech and all the pundits analyze what Trump said and what he has in mind. There is NOTHING in his mind. Give credit or blame to the speechwriters. Stop giving Trump any air of respectability as if he can think logically. Enough already.
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The Yuan actually appreciated from 2007-2010
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We're in a conflict with China - not a traditional conflict, to be sure - but the first words out of your mouth should not be "I surrender."
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We "surrendered" when we elected Donald Trump to the presidency. Surrendered our morals, our values, our democratic norms - and now, it seems, our economic supremacy.
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The Founders so valued a stable asset-based currency that The Coinage Act of 1792 established DEATH as the penalty for devaluing the dollar.
Since the creation of the Federal Reserve System the value of the dollar has fallen 98%.
Time to re-establish those Coinage Act penalties!
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@Charles
Perhaps you can elaborate on that assertion.
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@Charles Yes, and have a slowly expanding economy as a result. WRONG.
@Richard Johnston and @Christopher
I'm not sure which assertion you're referring to, but currency devaluations hit lower-class working people and retirees on fixed incomes the hardest. But they hit EVERYONE.
If you earn $25 for an hour of labor, you should be entitled to exchange that $25 for $25 worth of goods and services either now OR in the future. If the currency is devalued, you have lost the value of your labor.
Same with a retiree on a pension. Let's say you have a pension of $40,000 a year. But next year that $40K only has $38K of purchasing power. $36K the next. $34K the next, and so on.
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"What’s at Risk"?
Pretty sure headline writer is different from the author, so it frequently isn't a good fit for the article.
Nevertheless, the risk is the same as in all the other arenas Trump pollutes. US loses its credibility. The world already dismisses us as a reliable partner in any endeavor. Aspirations to emulate the free world evaporated. I shudder to think what else may be lost before we lose the orange fat man.
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Currency wars are inevitable in an unstable international monetary system which is MOSTLY caused by its major injustices.
If the present US-China currency war expands substantially, the fragility of this unjust, unsustainable, and therefore, unstable international monetary system will show up and questions will again be raised about alternatives as happened in the 1970s with the SDR facility.
There is a grossly underestimated alternative that would also address another or perhaps the greatest problem and challenge in the 21st century, i.e. the looming climate catastrophe. Basing the unstable and future chaotic international monetary system on the carbon standard of a specific tonnage of CO2e per person would transform not only the international monetary system—the shock absorbers in the present system—but the nature of global governance. The commercial, intellectual, ecological and strategic dimensions of this carbon-based international monetary system are seminally presented in Verhagen 2012"The Tierra Solution: Resolving the Climate Crisis through Monetary Transformation" (www.timun.net).
States an outstanding economics author and climate specialist about this Tierra global governance system: “The further into the global warming area we go, the more physics and politics narrows our possible paths of action. Here’s a very cogent and well-argued account of one of the remaining possibilities.” Bill McKibben, May 17, 2011
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@Frans Verhagen
Wow! Thanks for sharing this link! I have been calling for a carbon tax as a simple way to get profit takers to start seeking renewable energy solutions instead of staying with petro-chemicals.
Obviously, changing the international monetary system so it drives humans to use less fossil fuels would require international alignment, and USA would lose hegemonic might, but all for the greater good.
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More ignorant fear-mongering. The greenback is the de facto global reserve currency, and the American economy is the core of the global economy. Trump could shoot a Chinese trade negotiator in the middle of Fifth Avenue and that still wouldn't change the status quo.
This reminds me of that old canard about "China selling US Treasuries," when in reality 70% of public debt is held by American citizens/entities and less than 5% held by Chinese entities. And it's the most solid piece in their house of cards economy, so they would be self-harming by selling it off (and the Fed or NIRP-countries like Japan/Germany would eagerly buy up any spare US Treasuries instead of their own negative-yield sovereign debt...)
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@asdfj
"This reminds me of that old canard about "China selling US Treasuries,""....
Why would this article remind you of that? Mr. Irwin is well aware of that fact and makes no reference to such misinformation here. He clearly points out the purchase of U.S. Treasuries props up the dollar which, in fact, the Chinese prefer.
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@asdfj Agreed that selling Treasuries in large amounts is self-destructive, askfj, but when people are pushed to the wall--sell Treasuries or give up the house--you know the answer.
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The world reserve currency status the USA had is not going to be around long, that was a known fact before Trump became POTUS. Now we can see the quickening on that front, Bye bye Birdie the world will have a basket of currencies as Reserve, likely backed by Metals, to keep the balance a lot better.
If you haven't stocked your retirement coffers with some forms of silver and gold, I would suggest you do that, also some land above the 100 year flood zone, Just so you can say you have something to fall back to when the USA falls into it's next depression, which is a lot sooner than it was last week.
You have been warned, don't be caught flatfooted.
@BioWebScape was here.
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@Charles E Owens Jr
Good grief, already. These old myths die hard.
@Charles E Owens Jr
"The world reserve currency status the USA had is not going to be around long"
[citation needed]
More Chicken Little histrionics from economic-illiterates...
@asdfj
What was the world's reserve currency before the dollar?
How long did it take to get replaced by the dollar? (My assumption is that inflection points arise quickly)
Did economists and bankers expect it to happen?
Those are the questions I would ask as an analyst.
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USA's international might going further down the drain, isn't that what Putin would dream off? Well, it seems his puppet is on the way to also deliver on that front.
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Trump is a profoundly ignorant and reckless man. Does anyone really think he understands the implications of all this... or cares?
We have Trump as President because of act of political war on the part of the Russians. What Putin has done is one of the most effective acts of asymmetric warfare ever... Once we get rid of Trump, I think the US should return the favor and go after Putin and his cronies with ever tool at our disposal short of military action. Go after their financial assets wherever they are in the world. Support whatever dissident groups exist in Russia...
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@Engineer I’m all for Russian assets being seized in the US. Unless a foreign person or llc can provide proof that the money used to buy a apartment or building in the US is clean, they should not be allowed to buy in the US. Should be retroactive also.
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On Currency Wars
Undeclared currency commenced after 2010.
Fact is that ZIRP and QE , are instruments to lower the value of a currency, and were competitively practiced by the Fed, the ECB, and the BOJ
That, as Mr. Irwin formulates it " the conventional wisdom among international economists is that this doesn’t count as currency manipulation" is a polite disguise, that saves face. Of course it is.
The chief practitioner was Mr. Draghi, of "whatever it takes" who still insists on using it to get the EU's weaker countries exports going. His parting shot.
The Fed's recent lowering of its rate was seen by many international monetary specialists as the sign that the US was joining the game.
As to the dollars role, the US continues its status as the worlds reserve currency (a left over from WW II where the US was the only economy left standing) the extend US jurisdiction extra-territorially, to the irritation of foreign Nations, leading to efforts replace the dollar's role as the World's reserve currency. E.g. the EU that has for some time been working on a vehicle to replace the dollars role in the trade with Iran.
And it is not limited to Europe. Look at Africa
"There is growing momentum to adopt China’s yuan as a reserve currency in Africa" (May 29, 2018)
https://qz.com/africa/1291372/chinas-yuan-gets-support-from-africa-central-banks-to-replace-us-dollar-reserve/
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@Woof
I agree. It is interesting to note the discussions regarding currencies floating "freely" which, as you note, almost never happens. Here in America, the misunderstanding of currency value is driven by our strong dollar "ego" and the fact that many foreign produced consumer goods are cheaper. The latter is important because, of all the abuse problems we have in this country, our addiction to cheap imports has, in part, brought us to this point.
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Why has China, despite being the world's second largest economy and being among the top three global goods traders, been allowed to directly control the value of it's currency relative to other major currencies rather than being required to float freely as do the other major currencies; e.g. U.S., EU, Japan, UK. China's currency control ( currency war? ) and the recycling of the resulting massive trade surpluses played a major role in precipitating the Great Financial Crisis. Our " bien pensants " are constantly wringing their hands with regard to Trump's disruption of " global norms ", but China has been doing this for the past three decades resulting in the demise of American ( and other ) manufacturing employment and wage compression leading to the social ills that currently afflict our society. The so called " global norms " appear to be quite one sided.
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@BD BD, I suspect large companies were making large amounts off selling to & buying from China so that there was no pressure to act tough as you suggest.
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@James Beckman ... indeed, I believe that you are quite coreect.
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There are many theories of international trade (including currency flows) -- all of which make sense yet are imperfect because of technological or demographic assumptions which are faulty or subject to change.
For example, economists were certain that Reagan's deficits would cause the dollar to fall, yet the opposite happened, giving rise to new theories of international trade.
No one knows what Trump's antics (deficits, trade wars, etc.) will cause. It should be added that today's world -- one with multiple advanced economic centers engaged in large scale international trade (like US, EU, China) - is unprecedented. The most predictable effect of all of this is yet another new theory of international trade.
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@MKR Well, we actually do know what his antics have done / can do to the stock market -- and the result is awful!
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President Trump has the best brain and the best temperament. Ever. He has assured us of this himself. I have every confidence he will make wise decisions on trade and currency matters. And all other matters, for that matter.
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@Rocky Sorry but Trump bankrupted a Casino which he owned, how bad do you have to be to go bankrupt in a business where the odds are in your favor?
Had he not been given $400 Million from his father, or had his father come and buy $3 Million in chips from his casino and walk out the door to use them like Christmas decorations, he would be the guy on the street trying to sell you a watch from under his coat!!!
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@Russell Smith I pray Rocky was being sarcastic...
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@Russell: your sarcasm sensor is malfunctioning. Please replace its batteries. Your points are good though.
@Rocky: and he only hires the best... ;-) so much winning...
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Let's look at Trump's bête noire, the trade deficit.
1. He is certainly right that it is important. It takes money out of the private sector. Before ALL of our 6 depressions and the Great Recession of 2008 (which would have been a 7th depression if we hadn't had a FED able and willing to pour TRILLIONS into the banking system to save it), there was a period when the net flow of money was OUT of our private sector.
In the case of the 6 depressions, it was because we practiced "fiscal responsibility" and the federal spent LESS than it taxed. This leeched money OUT of the private sector.
While we also did this a bit before 2008 (Clinton surpluses), the surpluses were small and brief. The main reason money flowed OUT of the private sector from 1996 to 2006 (except for a brief period in 2003) was that the trade deficit was larger than the federal deficit. So unless the federal government is willing to have a large federal deficit, a large trade deficit is really bed news.
2. On the other hand hand, the US benefits from the dollar as the world's reserve currency. Other countries need dollars to buy stuff from still other countries. Hence they are will to give us good deals to get dollars. The only way they can get them is if we have a trade deficit.
This problem has the delightful name of the Triffin Dilemma.
8
MMT gives us a solution to this Dilemma.
If the federal government spends more than it taxes, if it has a deficit, then money flows FROM the public sector to the PRIVATE sector. Since the FED can create as much money as we want out of thin air, if the Treasury sells bonds to the FED (I know, primary suppliers) which returns the interest, we can do this as much as is needed.
What about inflation? Since prices are proportional to the amount of money in the private sector (times its velocity), won't this send prices thru the roof?
Yes, if we spend the money stupidly like tax cuts for the Rich. BUT since prices are also INVERSELY proportional to the amount of stuff, goods & services, we produce, if we spend the money so that it facilitates more production, the prices will not rise too much.
The only time this will not work is if our economy is constrained, if there is no way to increase production. For example, suppose we did not have enough arable land to feed our population Suppose we had just lost a war and the victors we taking what little money we had & what stuff (steel, timber, & cattle) we produced as reparations, so we could not buy food from abroad. Then spending money would only make things worse.
This has side benefits. If we spend the money, say, as the Democratic candidates propose, this WILL increase production, and will get lots of things that need to be done accomplished. Also it may lower the value of the dollar, thus increasing our exports.
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And didn't China take all this into consideration when it made it's decision to devaluate? It may be acting for internal economic reasons but surely they know as well as we what this may start given the current situation.
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An eye for an eye, soon we will all be blind.
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I'm sure it's all part of Trump's handler's plan.
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No, the consensus is not that "countries should be free to set monetary policies aimed at generating sustained growth". Countries are not supposed to buy up trillions in currency to get an advantage in foreign trade - that is currency manipulation and it is strictly forbidden (although there are no penalties for doing it). China did that until 2014 but recently it has been doing the opposite, propping up its currency, and its recent action was to let the value fall briefly.
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Bert Love presents a solution, indeed, one that is already being advanced by China, Iran, Russia, and a dozen other countries, viz., dump the dollar. Trump has done extreme damage to the USA in many ways, but his failed presidency may well be remembered for destroying the US dollar as the world currency. Maybe the world will be a better place for it. The hegemon will be cut down to size.
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@John
Other wannabe hegemons are waiting for the US to slip. Any of them will be worse.
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@DisplayName they may be worse but the USA will lose tons of influence when it happens.
Trump, the self-identified stable genius, is in fact a reactionary with little real knowledge of complex issues, who often acts based on the what is said to him by the last person who whispered in his ear.
My guess is there is a group of people making money off of Trump's trade and currency decisions. After all, as Trump often points out by words and actions life is a zero sum game with winners and losers. Therefore, my question for the press is who is making money off of Trump's economic decisions?
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@old soldier - another question for the experts: Does Russia benefit from the US - China trade and currency conflicts?
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@old soldier
Excuse my cynicism but I would re-frame the last question "for the press". Is Trump making money off of his market-moving tweets and economic decisions?
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@old soldier
Absolutely! They can grow soybeans too, and the transportation costs should be lower. This is but one example.
3
Trump has no background or theoretical knowledge to help him understand monetary policies. Hence his flailing at issues. Moreover, has he forgotten his speech before the UN when he declared that his responsibility was first of all to the US and invited others to do the same for their countries? He cannot be the only one concerned with his country and have the others worry about him. But then, that is precisely his problem, he only thinks of himself.
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The problem with having a simpleton like Trump in control, is he sees the trade deficit as a sign of economic weakness that has to be fixed and is not intelligent enough to understand currency valuation and other factors that influence the modern global economy. His 1960s undergraduate education (2yrs at Fordham and 2 yrs at Wharton’s undergraduate economics program) has not prepared him for this job and he is in over his head. Unfortunately he is also a narcissist, who thinks he is the smartest person in the room and refuses to listen to knowledgeable experts. We are headed to financial ruin, if we give him 4 more years to ruin our economy the way he had all his other businesses.
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@EPMD - Spot on!
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@EPMD: Superb comment. And people in every state need to understand that in order to get this simpleton out of the Oval Office - there must be tamper-proof vote casting because, as Robert Mueller testified to Congress two weeks ago, the Russians are plotting to interfere with our elections "as we sit here." There should be alarm bells going off in every state in our country to prevent this in 2020 so that Putin's pawn - and Trump's money lenders - Russian oligarchs - is out of office. These are very, very troubling times for our country and our democracy!
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@Jack I second that !
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An untold number of economic text books will be written about what is beginning to unfold, because it will not end well.
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@Paul- is anything trump gets involved with end well?
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Gee … Perhaps the currency trading models won't skim off consistent profits, if Trumps changes the rules of the game. That's basically Mr. Irwin's argument. As for the world using another reserve currency … yep … I am sure a totalitarian communist state is next in line as a safe haven to stash cash.
6
Trump has introduced a zero sum game into everything aspect of his presidency. This mentality, as Mr. Irwin points out, now reaches into global economics and is particularly dangerous.
Mr. Trump does not believe that he can win unless someone else loses. China's long term goal is to replace the USD with the RMB as the world's default currency. In the end, Trump may prove correct in this angle - the US will lose if China wins.
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@deedubs
Point well taken. It’s also why he sees no use in collective actions with other nations, because in his simple mind somebody is going to be a loser.
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For the past year, I have been contacted by many Chinese Nationals who were desperate to get their money out of China by investing in US real estate. They were concerned that their government would be changing course and that the financial future was uncertain. HSBC Bank was told by the Chinese government to quit lending to their citizens for foreign acquisitions or risk remaining in the country. The US should not underestimate the Chinese. Bullying and threats will be met quietly but with a strong response. And, here is the cause of the next great recession in the making...
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@Patricia: On a smaller scale, I sold some small, high-end collectibles on Ebay and Chinese investors snapped them up. Most of them went to different buyers but to the same address in Seattle, a warehouse that was owned by a Chinese company.
The American economy can get by just fine without those things I sold, so I believe that what happened was that Chinese citizens without the wherewithal to purchase real estate were buying collectibles to protect their savings from a collapse in the Chinese currency.
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The US is turning into the Wells Fargo of international finance. It will take many years to fully assess the damage that this administration has done to US credibility in financial areas (this story) along with diplomacy and science. Years from now, most
surviving Trump voters, when asked by their grandchildren, will deny they ever voted for him.
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@John true, just like the “W is MY president” bumper stickers that suddenly disappeared. I remember the day that I noticed that they were gone when I was living in Dallas.
The International Monetary Fund should replace the U.S. dollar as the global reserve currency with a fund made up of many currencies which would adjust its currency mix to compensate for currency manipulation.
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@Bert Love Who will be in charge of this IMF? And how many divisions does he have?
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@Bert Love
Another comment suggested a similar idea but ties the value of currency to a carbon footprint (I think is how it works); seems like a way to tie justice into currency.
check it out: http://www.timun.net/
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@Bert Love Sure, they can call it bitcoin. With the full faith of which country?
Mr. Irwin, Nice piece. Your op-ed colleague at the NYT, Matt Phillips, however, has a slightly different view. (See A Weak Dollar Could Help US... in the August 7, 2019 issue.) The trade politics and policies of the 1920s and 1930s---competitive devaluations, tariffs, bilateral trade negotiations, and closed trade blocks---, policies which the US and China now seem to be implementing, didn't exactly promote robust economic growth. There was also another downside risk that post-World War II planners realized and hoped to avoid: Economic blocs rigidifying into political blocks that could lead to war.
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