Mnuchin delays answering question that is beside the point anyway

It is probably well understood that the Treasury is not actually going to answer the largely semantical question of whether China is a “currency manipulator.”  Instead, Treasury will figure out whether it would welcome the implications of whatever label it puts on China.  If calling China a manipulator seems likely to serve Treasury’s interest, then China will be called a manipulator.  Otherwise, not. It was ever thus, including under Obama. I think people “get” that.  It is not controversial, so far as I can tell.


What is a bit more controversial is an idea I have been trying to push for the last month and will repeat here.  Or maybe “controversial” is not the right word. In order for an idea to be controversial it has to be given enough consideration to be accepted by some and rejected by others.  And I don’t think my claim here quite clears that hurdle.  What looks like an obvious point to me seems to be given no consideration in the popular and even technical discussion of this issue.

The point is that the question of currency manipulation is largely irrelevant, at least from the perspective of the collective US economic interest here.

Let’s assume for the sake of argument that the United States taken collectively has an objective interest in whether trade with China should be taxed or otherwise limited. If such a collective interest could be identified, then in an ideal world the US government would presumably act on it.

The entry-level gains from trade argument that they teach in economics 100 * would suggest that the US should freely trade with China, regardless of why some goods or services may be more cheaply sourced there.  Importing inexpensive goods from China raises US welfare, full stop, according to the simple story.

Of course, the reality is much more complicated than that simple gains from trade story implies.  The United States might have an interest in limiting trade with China in order stimulate aggregate demand in the United States (if that is an issue), on infant industry or strategic grounds, or because the US does not welcome the income and wealth distribution effects of free trade with China. Separately, the US might threaten to do something on trade that is not in the interests of the US if that threat moves China towards doing something in the interest of the US, such as opening her own markets to us. I have probably left out other possible reasons.

The issue is very complicated and far beyond my competence to judge.  But one simple and overlooked point that I would like to insist on is that none of this turns on whether China is manipulating her currency.  It could easily be that China is manipulating her currency in the interest of the United States. And it could also easily be that China’s currency is not manipulated, whatever that might mean, but that we might want to limit trade with China anyway.  The two issues — of abstract US interest and manipulation– are simply not obviously connected. **

At bottom, what the US has to decide is whether it has an interest in letting in Chinese goods at the price at which they are made available.  As mentioned, that is a complicated question. But whether the prices result from currency manipulation or some sort of “natural” production advantage in China is irrelevant — at least in the context of that abstract collective US interest I mentioned above.

And I think the discussion around this issue might be clarified if people would take account of that point – maybe at least long enough to reject it, which I don’t think they should do.

Thank you for tolerating my repetition.

* Sorry to use that overused cliché, but it applies in this case.

** One might retort that the currency manipulation test is a way of forcing the trading partner to allow comparative advantage to take effect, so that the gains from trade are maximized.  I accept that, as fairly obvious, but so far as I can tell it does not overturn the fairly simple point I am trying to make here. The whole debate turns on other issues.