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?

President Trump Goes To War: Afghanistan Redux

In his maiden foreign policy speech of August 21, 2017, President Donald Trump sketched out his plan for “winning” the war in Afghanistan.  Trump also warned Pakistan that if it did not stop harboring terrorists, he would cut off several hundred million dollars in aid and attack Taliban sanctuaries inside Pakistan.  His plan marks a continuation of the war as fought under presidents Bush and Obama, but with changes in the rules of military activity favoring U.S. forces.

Trump’s decision to send more troops to Afghanistan, staying as long as necessary to “win,” reversed his campaign pledge to withdraw.  As he put it, campaigning is one thing, but sitting behind the desk in the Oval Office facing reality is another.  (Why any voter would ever choose a candidate on the basis of his or her foreign/military policy proposals put forth during a campaign is a great mystery.)

In one bold move, Trump intensified the war on Islamic terrorism in Afghanistan and extended it to another Muslim country, Pakistan.  The tone and manner of his speech were very presidential.

Now we are entangled in an even greater war against Islamic radical terrorism, from Libya in the West to Pakistan in the East, with Saudi Arabia, the Emirates, Qatar, Bahrain, Iraq, Iran, Syria, and Russia in between, not to mention the boatloads of Arab and North African migrants, some terrorists among them, pouring into Europe by land and sea.

Moments after Trump’s speech, China’s Foreign Ministry announced China’s continued support for Pakistan.  President Xi Jinping has already pledged $48 billion in contracts for Pakistan as part of his  “One Belt, One Road” initiative.

Pakistan’s gross domestic product is around $300 billion.  Its government spends about $40 billion.  U.S. economic and military aid to Pakistan is less than one percent of its budget.  Threatening its cutoff will not frighten Pakistan.  China will likely make that up and more in additional aid to Pakistan.

What if Pakistan requests military assistance from China, including troops and equipment to be stationed inside Pakistan near the Afghanistan border?  U.S. military activity in Syria is constrained by the risk of hitting Russian troops or engaging Russian aircraft in combat.

Lots to think about.  Only time will tell if the results from Trump’s approach to Afghanistan will be any more successful than those of his two predecessors.  I’m from Missouri, the “show me” state.

PS.  Someone forgot to inform Secretary of State Rex Tillerson that Trump twice proclaimed “we will win” in his speech.   At his briefing of August 22, 2017, Tillerson acknowledged that the U.S. might not win, but that neither would the Taliban.  The stalemate would force the Taliban to the negotiating table.

What Did Trump Do Wrong?

Trump did not launch two wars in Afghanistan and Iraq

Trump did not overthrow Libyan leader Colonel Muammar Gaddafi, who had abandoned his nuclear weapons, and thrust Libya into civil war.

Trump did not displace over a million civilians from their homes in Syria and the Middle East

Trump did not cause hundreds of thousands of civilian casualties in Afghanistan, Iraq, Syria, Libya, and other countries.

Trump did not involve the U.S. in the Saudi War in Yemen.

Trump did not sign a deal with Iran, putting it on the road to acquiring nuclear weapons.

Trump did not kick the North Korean, nuclear-armed ICBM threat down the road for the 16 years of Presidents Bush and Obama, and President Clinton before that.

As John R. MacArthur so aptly put it in his Article, “Living With Trump” (reproduced in Harper’s Magazine, August 19, 2017):

“Loathing for Trump makes people forget that, among other horrors, a coalition of Republicans and Democrats has already wasted around $3.7 trillion in Iraq and Afghanistan, sacrificed the lives of nearly 7,000 American soldiers, and wounded more than 52,000. Today, Bush is considered a practically serious portrait painter and Hillary a feminist martyr. Obama, the architect of the famous 2009 so-called surge in Afghanistan—a military intensification that accomplished nothing other than polishing up his image as commander-in-chief—is admired and missed like no other political figure.”

The Middle East is in much worst shape in 2017 than it was in 2001.

On the domestic front, Trump did not preside over the worst financial and economic crisis since the Great Depression.

Trump did not preside over the slowest economic recovery in modern American history.

Trump did not make a mess of the U.S. health care system and insurance market.

So, what did Trump Do Wrong?

Trump won the election.  He kept Hillary Clinton from assuming her “rightful place” in the White House.

Trump does not speak nicely like other politicians.

Trump is rolling back excessive regulations.

Trump wants to downsize the federal government.

Trump appointed a conservative, Neil Gorsuch, to the Supreme Court and continues to appoint conservative jurists to federal district and appeals courts.

Trump wants to cut tax rates.

Trump is presiding over large gains in the stock market.

Trump is presiding over job gains and stronger economic growth.

Trump is presiding over a rise in consumer confidence.

There it is.  Maybe if Trump invades a Middle-East country or two, presides over a financial crash and appoints liberal jurists, he will become acceptable.  But he will also have to speak nicely, stop tweeting, and act presidential.  Will those measures and gestures turn the tide?