SO FAR, TRUMP’S TRADE POLICY FOCUS—TARIFFS AND CURRENCY MANIPULATION—IS ABSURD!

Throughout Donald Trump’s Presidential Campaign, both during the Primaries and the General, he has focused his rhetoric on bringing industrial jobs back to America. Perhaps it doesn’t matter that many of those jobs have transferred into the service industry, been upgradeded into the Digital Age or been replaced by new technology.  Needs sell, facts don’t!

Two of Trump’s more often expressed promises have been that: he will slap tariffs on Imports from Mexico and China, and he will rein-in Chinese currency manipulation, so its value won’t be overstated.  Once the harangue is brushed away, however, these  assertions don’t make much sense!  Let me separate the two and, first discuss Tariffs and, then consider Currency Manipulation.  Boring? Yes, but bear with me!

Trade usually takes place between two countries; so, if if Country A imposes a tariff on imports from Country B, Country B often reciprocates and levies a tariff against Country A’s exports.  So, in the end, such trade wars are inflationary, the tariffs are passed-on to the consumers of each country.  Inflation rises, and workers in both countries may face job cuts.

For instance, the $25,000 Ford Fusion, which is imported from Mexico, might now cost $33,750, after the proposed Trump 35% tariff.  Assuming that less Fusions would be sold at the higher price, some Mexican workers would probably be laid-off.  But, so would some American workers in the U. S, who make many of the Fusion components, that are exported to Mexico.  Therefore, consumers and workers, in both nations, would lose!

The Chinese currency, the Renmimbi (or Yuan) has declined by 11% in value over the past 18 months, versus the U. S. Dollar.  The weakening Chinese economy caused the decline in the value of its currency.  Additionally, the Renmimbi became one of the (now five) “Reserve Currencies” this past October 1 and, as such, it is now generally acceptable in many international transactions.  Accordingly, the Renmimbi is now subject to greater scrutiny, with regard to possible manipulations, in order to maintain its new elite status..

Propping a currency up above its true value, however, would make Chinese products more expensive in the overseas markets and, thus, reduce sales.  The weak Renminbi also encourages wealthy Chinese to maintain their liquid funds in stronger overseas currencies, including the purchase of hard assets.  Currently, the U. S. Government is monitoring Chinese investments in America, which have doubled in value since 2015.

As far as these two components of Donald Trump’s Trade Policy, tariffs just serve no constructive purpose whatsoever, and manipulation of the Renmimbi appears to be non-existent.  Only time will tell us which among Trump’s vague policies: will receive Congressional approval,  might be enacted through executive order, and which policies were merely ideas that he had no real inclination to pursue.

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