REMARKS Bloomberg Businessweek August 12, 2019
trade and currency war that has no end in sight. Key U.S.
stock indexes fell almost 3% on Aug. 5 after the yuan’s
depreciation. “We did not enter this particular trade war
with China with a clear plan for how to get out,” says Philip
Levy, a member of President George W. Bush’s Council of
Economic Advisers who’s now chief economist for freight
forwarder Flexport. “The plan for how to get out seems to
have been ‘We’ll threaten them, they’ll succumb, and then
we’ll be happy.’ So far we haven’t seen anyone talk about
what if they don’t succumb?”
Let’s unpack the yuan’s depreciation, which amounts
to nearly 5% since April. Any goods priced in yuan have
become cheaper in dollars. The yuan depreciation seems
to meet Trump’s requirement of making tariffs painless to
American consumers. By reducing the yuan’s buying power
relative to the dollar’s, it makes the Chinese poorer and
Americans richer. For Trump, though, this is highly prob-
lematic. The depreciation will make it easier for China to
hang on to its market share in the U.S. As a result, Trump
could fall short of his oft-stated goal of bringing factory jobs
back to the U.S. on a massive scale.
You start to see the problem for the president. He wants
to shelter Americans from tariff-related price increases.
But he also wants China to lose market share, which can
only happen if Americans feel the pain of paying more
for imports from China and consequently switch to buy-
ing American. Trump can’t have it both ways. “If he’s try-
ing to encourage jobs and producing things here by taking
away from other countries, the tariff could in principle do
that, but it’s got to inflict pain upon somebody,” says Menzie
Chinn, a professor of public affairs and economics at the
University of Wisconsin at Madison.
Treasury’s designation of China as a currency manipu-
lator is another refusal to engage with reality. While China
did unfairly suppress the value of its currency in the past to
gain competitive advantage, in recent years it’s been doing
the opposite: propping up the yuan against market forces
that would drag it lower. The reason the yuan weakened
on Aug. 5—crossing the threshold of 7 yuan to the dollar in
onshore trading—is because China dialed back its support
for the currency. In other words, it briefly stopped manip-
ulating. And that’s precisely when Treasury chose to label
it a manipulator.
This is Through the Looking-Glass material. TreasuryWhen al
raise
tariffs