This is an interesting piece on trade imbalances, how to fix them, and currency manipulation.
Some very good points in here, perfect for a read on what is a quietish sort of Asian forex morning so far.Bolding mine.
Foreign trade barriers and US tariffs have essentially no impact on the overall US balance of trade
- The policies that matter for the overall trade balance are fiscal policy (the federal budget deficit) and exchange rate policy (foreign exchange intervention and regulation/taxation of foreign capital).
- Because the trade balance reflects transactions with other countries, fiscal policies and exchange rate policies in other countries also have a profound influence on the US trade deficit.
- The best aspect of the Treasury report is the analysis of how the pattern of global trade imbalances largely reflects inadequate domestic spending in surplus countries, most notably China and Germany. Improved social safety nets in China and Korea and infrastructure spending in Germany would meet internal needs and rebalance global trade at the same time. During the long period of weak global economic growth, the large US fiscal deficit provided a net benefit to the world while at the same time it contributed significantly to the US trade deficit. Treasury's report is strangely silent on the role of the US fiscal deficit in the trade imbalances. This role is poised to become much larger with the tax cut and spending increases passed since December 2017.
Treasury declined to classify any country as a currency manipulator
- In a recent blog post, Tessa Morrison and I identify eight countries as currency manipulators in 2017 using the criteria developed in my book with Fred Bergsten
- Hong Kong, Israel, Macao, Norway, Singapore, Switzerland, Taiwan, and Thailand
- Except for Thailand, these countries did not meet Treasury's bilateral trade surplus requirement.
- Thailand did not meet Treasury's definition of being a "major trading partner" of the United States, although it had the 20th largest bilateral exports plus imports of goods (and 15th largest if the euro area is counted as a single trading partner).
- It appears that Treasury interpreted its statutory mandate in a way designed to avoid finding any country guilty of currency manipulation.
- If the bilateral surplus criterion were lowered to $10 billion, intervention were measured on a flow basis, and "major trading partner" were defined to include the top 20 trading partners, Treasury could have found Switzerland, Taiwan, and Thailand to be currency manipulators.
