The world’s economies once attempted a competitive devaluation of currencies.
It was during the Great Depression of the 1930s. You might ask your grandparents or great-grandparents about that one.
Today, Missouri Sen. Josh Hawley finds himself with strange political bedfellows — working with a Democratic colleague to prevent currency manipulation, particularly with regard to China. In this broad goal, the Missouri Republican finds himself aligned with President Donald Trump, who labeled China a currency manipulator for letting the value of the yuan slide, and also Sen. Elizabeth Warren. How often can you say that?
Hawley, a freshman senator, may have diagnosed the problem but proposed the wrong remedy. His bill, sponsored with Sen. Tammy Baldwin, D-Wisconsin, seeks to impose a “market access charge” on foreign purchases of stocks, bonds and other assets, a move that would reduce capital inflows and thus weaken the U.S. dollar. Because a weak dollar makes U.S. products cheaper overseas, this foreign investment tax would help U.S. farmers and manufacturers that rely on exports.
How would this go over? In an unscientific News-Press NOW poll, 85 percent of respondents opposed an effort to weaken the U.S. currency. The results might have been different had we asked, “should the U.S. counter Chinese currency manipulation?”
The point is that Hawley’s bill taps into a debate that has emotional reverberations, with currency associated with national strength. It also has a practical effect, especially for a place like St. Joseph, with its economy dependent on agriculture and manufacturing.
Those segments of the economy would gain from a weak dollar. But like any other city, St. Joseph also feels the impact of consumer spending, which stands to suffer from the ill effects of a weak dollar: higher prices and potentially increased borrowing costs.
More troubling is a provision in this bill that would require the Federal Reserve to maintain the dollar at a level that significantly reduces the nation’s trade deficit, a scenario that could run counter to the Fed’s existing mandates to pursue price stability and full employment.
A weaker dollar has its benefits and might be worth pursuing, but a go-it-alone approach that cements this policy into U.S. law could generate unforeseen consequences and erode faith in our currency. A better way to help manufacturers and farmers would be to reach a trade deal with our biggest trading partners.
For perspective on the dangers here, we would suggest a warning from a figure who might be more familiar to Hawley’s colleagues on the left.
In plotting the Russian revolution, Vladimir Lenin is believed to have said: “The best way to overturn the capitalist system is to debauch the currency.”