Outcry over Trump administration’s currency exploitation talk is naïve and hypocritical
In the wake of the contentious comments given to the Financial Times by the U.S. President’s top trade adviser, the uproar surrounding the Trump administration’s currency exploitation rhetoric has been both naïve and hypocritical.
Following Mexico, China and Japan, Germany is now the latest country to be named a currency manipulator by the Trump administration, which appears to be intent on challenging trading partners that run huge surpluses with the U.S.
Mr Navarro, Head of the new U.S. National Trade Council, asserts that the Euro is akin to an “implicit” Deutsche Mark, with a “grossly” low valuation, giving Germany an unfair advantage over its trading partners, such as the U.S. and the EU.
Whilst slating Germany, Mr Trump was also criticising China and Japan for devaluing their currencies, during a meeting with top pharmaceutical executives.
During the aforementioned meeting, the President commented: “They play the money market, they play the devaluation market, while we sit here like a bunch of dummies.”
The rhetoric from Trump’s administration, and the growing likelihood of currency wars has, perhaps expectedly, led to a global furore.
That said, a great deal of the indignation is, to my mind, naïve and hypocritical on both sides.
Whereas it may not be considered fair, it can be reasonably assumed that currency manipulations occur worldwide, as central banks act in their jurisdictions’ best interests by using everything at their disposal, such as competitive devaluations.
Therefore, the tumult generated in the aftermath of Mr Navarro’s comments appear somewhat naïve. Furthermore, it could also be described as naïve to believe that the Trump administration wouldn’t go down this path, given past speeches on the subject.
It would appear that Navarro is of the opinion that the German economy has substantially benefitted from having a weak currency, the Euro. Along with many others, he claims that if the country had kept the stronger Deutsche Mark, its exports – which make up nearly half of economic output – would not have been so resilient, particularly amongst other countries in the Eurozone.
However, in the case of other EU nations, the opposite is true. Taking into account countries like Spain, who have endured additional competitive burdens by having a currency stronger than the former Peseta.
That said, on the other hand, there is a sign of hypocrisy coming from the U.S. government.
Indeed, the term ‘currency wars’ comes from the Brazilians, after the Fed started Quantitative Easing operations at the end of 2008 and the dollar subsequently became weaker. In effect, it could be argued that the U.S. has been as keen to use monetary policy to devalue as they have been in Europe and Asia.