Fed Governor says currency manipulation does not matter

February 28, 2017

Targeting a country for perceived currency manipulation would not be an effective means to making progress on the economy, the governor of the Federal Reserve Bank of St. Louis told Morning Trade this week, knocking down one of Trump's oft-repeated campaign promises to attack China for its currency practices.

[Adam Behsudi | February 28, 2016 |Politico]

"I'm not a big fan of the currency manipulator thing," Governor James Bullard said during a visit to POLITICO's Rosslyn headquarters on Monday. "My feeling is you can't manipulate your currency and become rich."

After repeatedly promising he would instruct his Treasury secretary to label China a currency manipulator on the first day of his presidency, Trump has not yet acted on the issue - but he also has not put it to rest. He called the Asian nation the "grand champions at manipulation of currency" during an interview with Reuters last week and added that despite not taking action against China yet, he hasn't "held back."

Bullard said that while a country might see "temporary advantages," "I don't think you can get permanent advantages by trying to manipulate that process." 

"There have been probably dozens of countries over the last 50 years that have tried to depreciate their way to success, and they haven't really been all that successful," he said.

BULLARD: U.S. SHOULD 'GET OUT AND COMPETE': The best way to win in a competitive global economy is to create an attractive environment for businesses and workers, not to cut yourself off from the rest of the world, Bullard added.

"If you want to have a successful economy, get out and compete," he said. "You're not going to stop globalization any more than you're going to stop blood flowing through your body - and you wouldn't want to."

At the same time, he noted that changes in trade policy, despite being a central tenet of Trump's agenda, are not likely to bring too many immediate changes.

"I can appreciate that President Trump has a trade agenda and he wants to change things, but from a macroeconomic perspective, I see that as a slow-moving policy," he said. 

"There are armies of lawyers, and they meet for years and years and years and the final result is probably not all that different than what you have now," he continued. "It's possible that there are other ways that this could move faster, but rules are rules and agreements are agreements, so they take a long time to change."

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  • William Ryan
    Would somebody please explain to Gov. Bullard just how keeping your currency artificially low by not letting it float freely on the open market as we do effect the cost, price of goods being exported and makes our goods more expensive in comparison. Add to that the merchantilism of dumping product far below cost into other countries markets to eventually run them out of business to take over that market. Perhaps Gov. Bullard knows nothing about that also. I’m not a big fan of loosing 6M jobs while creating a $500B trade deficit / year and all the destruction left in the vacuum of whole communities was not fair competition either. Perhaps Gov. Bullard did not see or feel the social cost that we had in Michigan but it was real. I also believe in competition but lets have a level play field to compete on and I have no doubt that we can make anything at the China cost-price.
  • Bruce Bishop
    The meme has been that Chinese currency manipulation gives them a 35% (or so) cost advantage, and that a 35% (or so) tariff would offset that advantage and bring back U.S. manufacturing jobs.

    I have been saying for years that China’s cost advantage is so overwhelming that they could cut the price of everything they sell us by half, and they would still survive. I have also said that they could double the price of everything they sell us, and there isn’t a damned thing we could do about it. In other words, not even a 100% tariff would be sufficient to make U.S. manufacturers competitive with China.

    The dimwits say that “labor is only 15% of product cost,” so, China’s cheap labor can easily be overcome by tariffs. The fact is, China has a huge advantage in ALL aspects of product cost. Material, overhead, energy, transportation, and compliance, are mostly made of of wages and salaries — all of which, in China, are a fraction of our costs. As a matter of fact, while our compliance costs are increasingly horrendous. compliance costs are almost zero in China.

    The sad fact is, no amount of politically tolerable tariffs (the Democrats will scream bloody murder) will be sufficient to bring back U.S. manufacturing jobs. The only way to bring back our jobs would be to implement Warren Buffett’s recommendation for “Balanced Trade,” (Google it.) Only hard limits on the trade deficit, as proposed by Buffett, will have any impact.