Why We Don’t Address the Over-Valued Dollar

Paul KrugmanPaul Krugman highlighted a bit of disingenuousness about the Trans-Pacific Partnership (TPP) from the White House, Tariffs Versus Currencies. I thought it would be helpful to go into this a little bit because it is probably the most important single economic issue that we have to deal with. Basically: the dollar is too damned high. This is the reason that so many people are out of work. And this is the reason that we only manage to get to full employment when we have things like the late 1990s stock bubble and the late 2000s housing bubble.

In this new report (pdf), the authors said, “US businesses must overcome an average tariff hurdle of 6.8 percent, in addition to numerous non-tariff barriers (NTBs), to serve the roughly 95 percent of the world’s customers outside our borders.” Krugman noted that the 6.8% is supposed to sound like a very big number. But it isn’t. He provided the following graph that shows that value of the dollar (weighted by where we export) went up over 20% from last summer and the beginning of this year:

US Dollar Value -- Trade Weighted

Clearly, the value of the dollar is a far bigger deal. But I understand: 6.8% is still extra forcing against our exports. The problem is that the tariff forcing works both ways: we tax their goods and they tax our goods. So this discussion is disingenuous in the same way that these discussions always are on the issue of increased trade.

Dean Baker provided a good way to think of this. Imagine that there is a car being built in Ohio. After the trade deal, the company decides to send all the parts to Mexico to have the car assembled, and then shipped back here for sale. All of those car assembly workers are out of a job, yet “trade” has gone way up!

The question remains, “Why don’t we do something about the over valued dollar?” And the reason is because having a high valued dollar is great if you already have a lot of them. The high valued dollar is only a problem if you are like 99% of working age Americans who need a job. In addition to this, companies like Walmart depend upon buying cheap products from other countries. If paper towels out of China suddenly go up in price by 20%, it is a big problem for them because their supply lines are already set up. If paper towels can be purchased more cheaply in the US, then another retailer could beat Walmart’s prices.

All of this is entirely typical of the way the we deal with all problems in this country: we don’t go straight at the problem; we nibble around the edges. The TPP apologists will claim that we don’t deal with currency manipulation because it is a hard problem. But the value of the dollar is not just an issue of currency manipulation. During the Clinton years we explicitly had a “strong dollar” policy — and nothing has really changed. And that shows you that the real reason we don’t deal with the issue of the value of the dollar — and by extension, the issue of our trade deficit — is because the power elite in this country don’t want to. And that should tell you all you need to know about the TPP: it is being crammed down our throats because the power elite want it — not because it is good for the country.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

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