Donald Trump is talking a lot about China. His central claim is that that the Chinese government continues to manipulate the value of its currency, keeping it low and enabling Chinese companies to export their products at lower costs than competitors in the US or other parts of the world. Is he correct?<\/p>\n
When Trump made this claim as a presidential candidate several months ago, \u201cfact checkers\u201d rebuked him, citing economic reports that the Chinese currency (RMB) is now fairly valued relative to the US dollar. But the Chinese government pegs the value of the RMB in great part to that of the US dollar and reserves the right to inflate or deflate this value on a daily basis. If\u2014as these economists claim\u2014it is obvious that the RMB is not undervalued, and if the Chinese government is really committed to a market-based exchange rate, it would simply allow the value of the currency to float with the market. It\u2019s like someone from the US Postal Service claiming that the private sector couldn\u2019t deliver a letter for less than 49 cents. If so, then why maintain laws prohibiting the private sector from giving it a try?<\/p>\n
There\u2019s an interesting irony here. If the Trump critics were correct at the time when they claimed that the RMB was valued accurately, then the currency is now undervalued due to two significant devaluations made by the government during the Chinese market meltdown last week. I believe the Chinese currency is still undervalued but I am guessing. The truth is that we can\u2019t know for sure without letting the market decide. The beauty of a market system is that prices will set automatically and will accurately reflect market value. An exchange rate is nothing more than a price for a currency. This debate would resolve itself if the Chinese government allows the RMB to trade freely on global markets.<\/p>\n
So when it comes to currency valuation, Donald Trump is entirely correct. But he also refers to a need to \u201cdecouple\u201d economically from the Chinese. Here I believe he is right again, but only to a point.<\/p>\n
History, economics, and market logic tell us that free global trade benefits all partners. Artificially reducing trade between the US and China would have economic costs. If this is what Trump means by decoupling, then he\u2019s incorrect.<\/p>\n
But it is clear, however, that the US has mismanaged both its own economy and the US-Sino relationship. The Fed\u2019s overbearing influence on interest rates and financial markets makes it difficult for US negotiators to argue with straight face that the Chinese government should leave its markets alone. US government subsidies also pick winners and losers, and our massive debt has given the Chinese an opportunity to invest heavily in the US dollar. US negotiators should have been clear about the currency manipulation issue years ago, but they bought the argument that a weak RMB was necessary and appropriate for Chinese development. In this respect, the relationship with China is skewed. We need to clean up our own house fiscally and then\u2014from a position of strength\u2014insist that the Chinese do likewise. To the extent that Trump is suggesting this type of reboot, he is correct.<\/p>\n
For the record, I am not endorsing Donald Trump or any candidate for President at this point. Many of you know that I like Rand Paul a lot, but he has struggled to package his ideas effectively. Trump has clearly changed the rules of the game and I\u2019m glad that he is running, however. His candor is a breath of fresh air, but there\u2019s still a long way to go.<\/p>\n","protected":false},"excerpt":{"rendered":"
Donald Trump is talking a lot about China. His central claim is that that the Chinese government continues to manipulate the value of its currency, keeping it low and enabling Chinese companies to export their products at lower costs than competitors in the US or other parts of the world. Is he correct? When Trump […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/battle4liberty.com\/index.php?rest_route=\/wp\/v2\/posts\/931"}],"collection":[{"href":"https:\/\/battle4liberty.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/battle4liberty.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/battle4liberty.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/battle4liberty.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=931"}],"version-history":[{"count":0,"href":"https:\/\/battle4liberty.com\/index.php?rest_route=\/wp\/v2\/posts\/931\/revisions"}],"wp:attachment":[{"href":"https:\/\/battle4liberty.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=931"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/battle4liberty.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=931"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/battle4liberty.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=931"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}