Tuesday, August 29, 2017

Currency Manipulation. Who Is Manipulating Whom?

During the presidential campaign, President Trump repeatedly accused China of manipulating its currency, devaluing the Yuan, to gain advantage in its trade with the United States.  Devaluing the Yuan makes Chinese goods cheaper in the U.S. and U.S. goods more costly in China.  This was, in Trump’s view, a source of the large trade deficit with China, and loss of U.S. manufacturing jobs.

On occasion he also accused the European Central Bank of devaluing the Euro to give Europe an advantage in trading with the U.S.

How have China and Europe responded to these charges and threats of possible U.S. restrictions on imports from China and Europe?

On January 2, 2017, US$1= Yuan 6.95.  On August 29, the rate was US$1= Yuan 6.59.  That represents an appreciation, a revaluation, of the Yuan of 5.2%.

Similarly, on January 2, 2017, Euro 1=US$1.0465.  On August 29, the rate was Euro 1=U$1.2048.  That represents a revaluation of 15.1%.

Are China and Europe manipulating their currencies by appreciating them?  That makes no sense since a stronger currency would reduce exports from China and Europe to the U.S., unless they want to head off U.S. restrictions on their exports to the U.S

Or, is the U.S. manipulating the dollar by devaluing it, the flip side of Chinese and European appreciation, to gain an advantage trading with China and Europe to reduce U.S. trade deficits?  Are the Federal Reserve and the Treasury guilty of currency manipulation against China and Europe, and such other countries as Japan?   Are the Fed and Treasury conspiring with Trump to reduce trade deficits?

Who is manipulating whom?


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