The Truth about Trade Deficits and Currency Manipulation
Michael Collins, 12 January 2021
The U.S. Treasury Department has finally determined that China is a currency manipulator, putting currency manipulation and trade deficits back in the news. Trade deficits, currency manipulation and the strong dollar are complicated economic forces that directly affect the future of American manufacturing. Let’s look at how they affect manufacturing and why we must face the truth and do something around these issues, regardless of the politics.
Trade Deficits: Let me begin by saying that, yes, trade deficits have and will continue to hurt American manufacturing, although many politicians, economists, and industry associations disagree.
Michael Froman, former trade representative: “Every legitimate economist said that measuring trade policy by the size of the goods deficit is probably not a passing grade in a basic economics class,”
Lawrence H. Summers, Harvard economist: “The trade deficit is a terrible metric for judging economic policy.”
Mark Perry, Scholar, American Enterprise Institute: The trade deficit as most people (mis)understand it doesn’t even really exist, because America’s total trade with the rest of the world is always perfectly balanced once we account for all international transactions for goods, services, investment income, and financial assets.”
