MAGA Republicans are wrong to seek a cheaper dollar

Whether the dollar should be strong or weak is a vexing question for America’s economic nationalists. In his first term as president, Donald Trump often said that he wanted a weaker currency to make American-made goods cheaper overseas. But his tariffs and deficit-financed tax cuts contributed to a surge in the greenback’s value—and he also said that “ultimately” he wanted a strong currency. Today, with the dollar higher still, Mr Trump again says he wants a devaluation. And his choice of J.D. Vance as his running-mate has added another weak-dollar proponent to his inner circle.
美元应该强势还是疲软，对美国的经济民族主义者来说是一个令人头疼的问题。在他的第一任总统任期中，唐纳德·特朗普经常表示，他希望美元贬值，以使美国制造的商品在海外更便宜。但他的关税和赤字融资的减税措施导致美元价值飙升，他也表示“最终”希望美元强势。如今，随着美元仍然走高，特朗普先生再次表示希望美元贬值。而他选择 J.D.范斯作为竞选搭档，又在他的内部圈子中增加了一个支持美元贬值的人。

Mr Vance has highlighted the downsides of America producing the world’s dominant currency. The greenback makes up 59% of the world’s central-bank reserves and is used to pay for half of its goods trade. The depth of America’s capital markets, its commitment to the rule of law and the low risk of a sovereign default make it a magnet for savings. American assets make up over a quarter of the stock of global portfolio investment, up from less than a fifth in the mid-2000s.

Though the effect is hard to quantify, the dollar’s appeal makes it more expensive. That, some argue, makes it harder for American manufacturers to compete globally. Mr Vance characterises dominant-currency status as a tax on American producers and a subsidy to its consumers, who benefit from cheap imported goods. He is no fan of this redistribution, decrying Americans’ “mass consumption of mostly useless imports”.

It is true that a strong dollar hurts some exporters, who therefore lose from the greenback’s dominance. Yet on net, America gains from issuing the world’s dominant currency. Manufacturers benefit from cheaper imported parts and materials. The global appetite for Treasuries reduces the interest bill associated with America’s vast public debt. It takes a reduction of only about a third of a percentage point in interest rates to save $100bn (0.4% of GDP) annually. In any case, it is wrong to dismiss the benefits of low consumer prices, which boost workers’ real incomes. A common rule of thumb suggests that closing the current-account deficit by weakening the dollar would require roughly a 30% depreciation, which would boost inflation by 1-2 percentage points.

Trying to control the currency is likely to backfire painfully. Robert Lighthizer, the US Trade Representative during Mr Trump’s first term, has floated a “market access charge” on foreigners holding American assets. As a de facto control on inbound capital, this would raise interest rates for the government and the private sector alike, deterring investment. Printing and selling dollars might set off a currency war, and America would lose credibility when criticising currency manipulation elsewhere. In the 1980s the dollar was devalued by the “Plaza Accord”, an agreement with America’s trading partners. But foreign governments manage their exchange rates less today than they did, capital flows are much larger, and the most important counterparty would be China, not American allies, making striking such a deal far trickier. Japan’s recent botched attempts to strengthen the yen show the dangers of trying to distort market pricing.

It is almost laughable to cast America as a victim of the global financial system. America accounts for 52% of the G7’s GDP at purchasing-power parity, up from 43% in 1990. Jobs are abundant and average incomes have grown at a pace most of the rich world can only dream of. In recent years, wage inequality has fallen. All this has been achieved without manipulating the dollar. Why start now? ■