Currency Manipulation : Wilbur Ross the new U.S. commerce secretary (Part 2)


Critics have attacked Trump as an “isolationist” and a “protectionist” who will start a “trade war.”  These attacks reveal a more fundamental lack of understanding of the role trade deficits have played in constraining US economic growth.

The prevailing view within the White House and Clinton campaign is that America’s economic woes are short run and cyclical and can be solved through Keynesian fiscal deficits and higher Keynesian monetary stimuli.  This Keynesian misdiagnosis has led to a near doubling of America’s national debt during the Obama presidency from $10 trillion to almost $20 trillion and the weakest economic recovery since World War II, all while America’s infrastructure deficit has continued to increase and our military has grown smaller.

In clip_image004contrast, Donald Trump views America’s economic malaise as a long-term structural problem inexorably linked not just to high taxation and over-regulation but also to the drag of trade deficits on real GDP growth.  Trade policy factors identified by the Trump campaign that have created this structural problem include:

1.      currency manipulation,

2.      the equally widespread use of mercantilist trade practices by key US trading partners, and

3.      poorly negotiated trade deals that have insured the US has not shared equally in the “gains from trade” promised by textbook economic theory.

Currency Manipulation      

According to textbook theory, balanced trade among nations should be the long-term norm, and the chronic and massive trade deficits the US has sustained for over a decade simply should not exist.

This textbook state of balanced trade would exist because freely floating currencies would effectively adjust differences in national domestic cost structures to bring about balanced trade.  

The problem, however, is that not all currencies freely float.

Many are actively managed, and some are pegged to another currency or currency basket.  This hybrid international monetary system makes it impossible for market forces to bring about balanced trade and thereby fairly distribute what the textbooks promise us will be the “gains from trade.” A poster child for this problem is China and its narrowly pegged currency.  

In a world of freely floating currencies, the US dollar would weaken and the Chinese yuan would streng then because the US runs a large trade deficit with China and the rest of the world.  American exports to China would then rise, Chinese imports to America would fall, and trade should come back towards balance. 

The problem, however, is that China stymies major adjustments.   China’s purchases of US treasury securities are one way the Chinese government holds down their currency relative to ours.  Maintaining their manipulated currency peg perpetuates the trade imbalance. 

·       Effectively, we are borrowing from China to pay for our trade deficit.  It is analogous to a money-losing business borrowing money every year to stay afloat. A similar problem exists because of the European Monetary Union.  While the euro freely floats in international currency markets, this system deflates the German currency from where it would be if the German Deutschmark were still in existence.  

·       In effect, the weakness of the southern European economies in the European Monetary Union holds the euro at a lower exchange rate than the Deutschmark would have as a freestanding currency.  This is a major reason why the US has a large trade in goods deficit with Germany – $75 billion in 2015 – even though German wages are relatively high.  The Germans, too, are buyers of US Treasuries as are the Japanese.  The US runs trade deficits with both of these countries as well as with China.

The broader structural problem is an international monetary system plagued by widespread currency manipulation.

Of course, a weaker currency stimulates the currency manipulator’s exports, discourages imports, brings about a more favorable trade balance, and the currency manipulator grows at the expense of its trading partners. Donald Trump has promised to use his Treasury Department to brand any country than manipulates its currency a “currency manipulator.”  This will allow the US to impose defensive and countervailing tariffs if the currency manipulation does not cease.

Extrait de: China widens trading range of the yuan, Posted by Québec de Droite, on mercredi 2 mai 2012

The Chinese central bank has tightly controlled the exchange rate between yuan and the US dollar since 1994 in order to maintain China’s export competitiveness.

In 2007, Beijing increased the yuan’s daily trading band from 0.3 percent to 0.5 percent under pressure from Washington to revalue the currency. But the CCP regime halted any further widening of the trading band after the 2008-09 global financial crisis sent Chinese export industries into a tailspin, initially throwing 23 million internal migrant workers out of work.

Last week’s widening of the trading band came after clear signs that exports cannot continue to power China’s rapid economic expansion, as they have done for the past two decades. China’s trade surplus halved in 2011 to just $155 billion, and the current account surplus fell below 4 percent of gross domestic product—down from a peak of 10 percent in 2007.

Before 1994, China’s currency was relatively independent from the Western economies.

The currency reform of that year marked a fundamental shift—pegging the yuan to the US dollar, while massively devaluing it to boost exports.


Quel est le problème avec la monnaie chinoise?

Le yuan est la monnaie de la seconde puissance mondiale, du premier pays en termes de détention de réserves de change. Or cette monnaie n'est pas convertible: la Chine exerce un contrôle des changes pour en contrôler strictement la valeur. Le yuan est considérablement sous-évalué. De plus, depuis trente ans, la stratégie de Pékin est d'indexer le yuan sur le dollar, pour que les évolutions de ces deux monnaies soient synchronisées.


Quels sont les avantages de cette stratégie monétaire?

Elle permet d'attirer les multinationales sur le sol chinois. Garder la monnaie sous-évaluée permet de produire moins cher. Les Chinois se souviennent qu'en 1985, Washington avait forcé les Japonais à réévaluer le yen, tordant le cou à l'industrie japonaise. Ils ne laisseront pas la même chose leur arriver.

Par ailleurs, indexer le yuan sur le dollar, c'est garantir aux multinationales qu'elles ne prennent pas de risques de change.

En retour, la Chine demande à celles-ci de produire pour l'exportation, pas pour le marché local.


C'est une stratégie géniale, un pacte gagnant-gagnant:


Les multinationales engrangent les bénéfices, 
et la Chine les excédents commerciaux.


Aux dépens de l'industrie et des balances commerciales de l'Europe et des Etats-Unis, qui perdent des emplois et des capitaux.(1)


The yuan-dollar peg was essential to the transformation of regions such as the Yangtze and Pearl River Deltas into the world’s largest cheap labour manufacturing centres.

China’s foreign currency reserves skyrocketed from $160 billion in 2000 to more than $3 trillion in 2011—due to massive inflows of export earnings and foreign capital. Most of the dollar reserves in turn were sent back to America via the purchase of US bonds—supposedly the safest investment at the time.

Apart from $1.2 trillion in US federal bills, China holds some $400 billion worth of bonds in the US government-backed housing giants Freddie Mac and Fannie Mae.

US housing price rises in turn allowed American working class households, which increasingly depended on debt because of declining real wages, to undertake the consumption spending that fuelled production in China.


Almost the entire Chinese boom rested on expanding exports.


Déficits commerciaux considérables


Elle entraîne pour l'Europe et les États-Unis des déficits commerciaux considérables.


Non seulement les emplois, mais aussi les capitaux sont délocalisés en Asie. Les multinationales n'investissent plus en Occident.


Qu'est-ce qu'il reste? Des emplois publics, avec lesquels on espère masquer l'hémorragie d'emplois marchands.


Tandis que l'on fait des cadeaux fiscaux aux grandes entreprises et aux super-riches.

Domestic consumption accounted for just 35.6 percent of China’s GDP in 2011—compared to America’s 70 percent—due to the super-exploitation of Chinese workers.