Ideal Taxes Association

Raymond Richman       -       Jesse Richman       -       Howard Richman

 Richmans' Trade and Taxes Blog

Currency Manipulation and Trade
Jesse Richman, 1/12/2013

Last week Edward Lazear published a opinion essay in the Wall Street Journal maintaining that "Chinese 'Currency Manipulation' Is Not the Problem."  His argument is that changes in the exchange rate between the dollar, the euro, and the yuan have not led to rapid changes in the trade deficit of the United States. 

Lazear does admit that trade flows have responded to changes in currency values, but he argues that these changes have been quite small.  This is one of the reasons why we think a more muscular approach to balancing trade (e.g. import certificates or the scaled tariff) is called for. 

Lazear draws a different conclusion, and his conclusion does not follow from his premises or his evidence.  He closes as follows:

"But China's choice of exchange rate policy is not the source of China's export growth. Disappointing job and wage growth in the U.S. has much more to do with our economic policy than with the value of China's currency."

In other words... ignore the trade deficit with China. 

But the conclusion does not follow from the premises.  Mr. Lazear provides no evidence in his entire essay, not a shred, that there isn't a relationship between the trade deficit and U.S. economic problems.  Instead, his entire argument is about the weakness of currency value adjustments in reducing trade deficits. 

Lazear also ignores the relative trade positions of the U.S. and the Euro-zone.  While the southern tier of the European continent consists of countries running trade deficits and paying the price for them, on the whole the Euro zone tends to run trade surpluses.  This is a major contrast with the United States, and this difference might reasonably be attributed (at least in part) to the currency manipulations of China, Japan, and their many imitators. 

And it should come as no surprise that the changes in the yuan's value have not produced dramatic and rapid changes in trade deficits.  In the short term, an appreciation in the yuan boosts the price of China's exports leading to higher deficits.  And long term adjustments require changes in supply chains that play out across multiple years.  The tentative hints of 'on-shoring' by a few U.S. firms might be the beginnings of such a readjustment.  And then there are all the non-currency ways China manipulates its trade.

Obviously there are other things the U.S. can and should do internally to boost its economy.  But balancing trade with the rest of the world, including China, ought to also be on the menu.  Given the wide range of non-currency methods China uses to sustain the trade deficit in addition to its currency manipulations, our response should also be multifaceted. 

Your Name:

Post a Comment:

  • Richmans' Blog    RSS
  • Our New Book - Balanced Trade
  • Buy Trading Away Our Future
  • Read Trading Away Our Future
  • Richmans' Commentaries
  • ITA Working Papers
  • ITA on Facebook
  • Contact Us

    Sep 2021
    May 2021
    Apr 2021
    Feb 2021
    Jan 2021
    Dec 2020
    Nov 2020
    Oct 2020
    Jul 2020
    Jun 2020
    May 2020
    Apr 2020
    Mar 2020
    Dec 2019
    Nov 2019
    Oct 2019
    Sep 2019
    Aug 2019
    Jun 2019
    May 2019
    Apr 2019
    Mar 2019
    Feb 2019
    Jan 2019
    Dec 2018
    Nov 2018
    Aug 2018
    Jul 2018
    Jun 2018
    May 2018
    Apr 2018
    Mar 2018
    Feb 2018
    Dec 2017
    Nov 2017
    Oct 2017
    Sep 2017
    Aug 2017
    Jul 2017
    Jun 2017
    May 2017
    Apr 2017
    Mar 2017
    Feb 2017
    Jan 2017
    Dec 2016
    Nov 2016
    Oct 2016
    Sep 2016
    Aug 2016
    Jul 2016
    Jun 2016
    May 2016
    Apr 2016
    Mar 2016
    Feb 2016
    Jan 2016
    Dec 2015
    Nov 2015
    Oct 2015
    Sep 2015
    Aug 2015
    Jul 2015
    Jun 2015
    May 2015
    Apr 2015
    Mar 2015
    Feb 2015
    Jan 2015
    Dec 2014
    Nov 2014
    Oct 2014
    Sep 2014
    Aug 2014
    Jul 2014
    Jun 2014
    May 2014
    Apr 2014
    Mar 2014
    Feb 2014
    Jan 2014
    Dec 2013
    Nov 2013
    Oct 2013
    Sep 2013
    Aug 2013
    Jul 2013
    Jun 2013
    May 2013
    Apr 2013
    Mar 2013
    Feb 2013
    Jan 2013

    December 2012
    November 2012
    October 2012
    September 2012
    August 2012
    July 2012
    June 2012
    May 2012
    April 2012
    March 2012
    February 2012
    January 2012
    December 2011
    November 2011
    October 2011
    September 2011
    August 2011
    July 2011
    June 2011
    May 2011
    April 2011
    March 2011
    February 2011
    January 2011
    December 2010
    November 2010
    October 2010
    September 2010
    August 2010
    July 2010
    June 2010
    May 2010
    April 2010
    March 2010
    February 2010
    January 2010

    Book Reviews
    Capital Gains Taxation
    Corporate Income Tax
    Consumption Taxes
    Economy - Long Term
    Economy - Short Term
    Environmental Regulation
    Last 100 Years
    Real Estate Taxation


    Outside Links:

  • American Economic Alert
  • American Jobs Alliance
  • Angry Bear Blog
  • Economy in Crisis
  • Econbrowser
  • Emmanuel Goldstein's Blog
  • Levy Economics Institute
  • McKeever Institute
  • Michael Pettis Blog
  • Naked Capitalism
  • Natural Born Conservative
  • Science & Public Policy Inst.
  • Votersway Blog
  • Watt's Up With That


  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

    Atlantic Economic Journal:

  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]