Wednesday, November 10, 2010

Is The U.S. A Currency Manipulator?

The U.S. dollar has depreciated by about 30% over the last 8 years, and during that time period U.S. exports as a share of GDP increased from about 9% in 2002 to 13.2% in mid-2008, and then fell through early 2009 as a result of the recession and a stronger dollar (see chart).  Since early 2009, the dollar's decline has continued, and exports as a share of GDP have been increasing. Is the U.S. guilty of manipulating its currency to increase exports? 

Note: The chart has been updated to reflect U.S. exports as share of GDP on a quarterly basis.  I previously divided quarterly exports by annual GDP, and have corrected the data and chart above.  Thanks to Scott Grannis. 

14 Comments:

At 11/11/2010 12:14 AM, Blogger Buddy R Pacifico said...

If the U.S. is manipulating currency to gain trade advantage then it is doing a lousy job. U.S. Imports now acccount for about 20% of GDP and are climbing.

 
At 11/11/2010 12:53 AM, Blogger PeakTrader said...

The U.S. hasn't been a currency manipulator, until recently. The depreciation of the dollar is a mechanism to help correct global imbalances.

However, Obama wants to double U.S. exports in five years, or provide the illusion of prosperity by making Americans work for foreigners:

Why Fed bond-buying plan is raising trade tensions
November 11, 2010

Joseph Gagnon, a former Fed official and now senior fellow at the Peterson Institute for International Economics, calls the charge that the U.S. is manipulating the dollar "outrageous." He notes that China and other exporting nations have been buying dollars and each other's currencies to keep their own artificially low - a tactic the U.S. hasn't taken.

The acrimony over currencies and trade reflects global pressures that might be hitting a breaking point. For too long, many economists say, China, Germany and other big exporters have depended on U.S. consumers, instead of their own, to buy their goods and power their economies.

A weaker dollar "topples their entire strategy of relying on exports rather than internal reforms to fix the problems that ail them," says Diane Swonk, chief economist at Mesirow Financial.

Economies like Germany and China, which have ridden a wave of exports out of the recession, complain that the Fed's main goal is to lower the dollar's value to give U.S. exporters an unfair price advantage.

In September, the U.S. trade deficit with China amounted to $27.8 billion. That's just short of August's record high. And it exceeds the U.S. trade gap with the rest of the world combined.

And the broadest measure of trade - the current account trade deficit - will reach 3.2 percent of U.S. gross domestic product in 2010, up from 2.7 percent in 2009, TD Economics forecasts. The current account gap includes not only goods and services but also investment flows between countries. By contrast, TD expects current account surpluses of 4.7 percent of economic output in China and 6.1 percent in Germany.

 
At 11/11/2010 3:09 AM, Blogger Jason said...

Guilty of not doing a very good job.

 
At 11/11/2010 7:44 AM, Blogger James Fraasch said...

PeakTrader,

Thanks for the other side of the story.

It's like a game of musical chairs though. The argument is that, yes, we are manipulating our currency but less so than our other trading partners.

Who's ready for Smoot-Hawley Round II?

 
At 11/11/2010 8:55 AM, Blogger Darren said...

I'm curious as to how much of that drop is due to the fact that from 2005 to 2008, China eased off on the dollar buying, letting the market readjust.

 
At 11/11/2010 8:56 AM, Blogger Sean said...

Yes, we manipulate our currency. We also look funny and have bad breath.

 
At 11/11/2010 9:05 AM, Blogger sethstorm said...


Who's ready for Smoot-Hawley Round II?

Let it happen.

 
At 11/11/2010 10:31 AM, Blogger VangelV said...

Is the U.S. guilty of manipulating its currency to increase exports?

Yes. The government is desperate because the data shows massive problems that few are talking about. Not only do we have the number of people out of the workforce and consumer bakruptices near record highs, and the number of people on food stamps is exploding, this is taking place when prices for commodities are exploding.

The Keynesian foundation on which Republican and Democratic administrations have built their policies is now crumbling and both parties are scrambling for a way out without abandoning the corrupt system that keeps them in power. Currency manipulation is the latest attempt to save the day but all that it will do is destroy the USD and the economy.

 
At 11/11/2010 10:33 AM, Blogger VangelV said...

Who's ready for Smoot-Hawley Round II?

Anyone who has paid attention. Why do you think that gold is selling for $1,400 an ounce?

 
At 11/11/2010 11:45 AM, Blogger juandos said...

"Is the U.S. guilty of manipulating its currency to increase exports?"...

Well whatever it is the US is doing its sure aggravating the Chinese and the Germans...

 
At 11/11/2010 12:58 PM, Blogger Jason said...

Juandos, that's because they want to export without consequence. The Germans are benefiting from having the Euro, eliminating the strong Mark. The Chinese are angry because they want to buy raw materials without the massive mark up with the dollar falling. Also their treasury bonds are worth less.

Hardly impartial parties.

 
At 11/11/2010 2:56 PM, Blogger juandos said...

"Hardly impartial parties"...

Oh no doubt jason, still didn't you think it was rather humerous to see these two countries with their knickers in a bunch over what can only be described as papering over almost worthless paper (a.k.a. QE2) as this country's new and improved fiscal policy?

 
At 11/11/2010 3:19 PM, Blogger Jason said...

Juandos, I do find it a bit amusing. But the really sad thing is there will likely be a QEIII and QEIV...QEMC...

The Fed is using QE to reflate certain assets today. Tomorrow it will be to inflate the Medicare/cade and SS unfunded mandates. We'll destroy the entire wealth of 10 generations of Americans so we can feel happy and secure now.

 
At 11/11/2010 4:25 PM, Blogger juandos said...

"Tomorrow it will be to inflate the Medicare/cade and SS unfunded mandates"...

Exactly jason and sadly it seems any excuse will do...

Speaking of which here's something most of us know about to one degree or another but now its in one very succint posting (replete with graphs) and its enough to bring tears to the eyes of even a strong Austrian economist (maybe even to a halfway sensible Keynesian too)...

From the Market Oracle: The Nanny State and the Cost of Unfunded Government Liabilities
Nov 01, 2009

 

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