In May, the US Treasury published a report to Congress on the macroeconomic and foreign exchange policies of major trading partners of the United States. As Stanford economist and Chicago Booth distinguished senior fellow John H. Cochrane noted on his blog, this made clear reference to the possibility of currency manipulation:
“Under Section 3004 of the 1988 Act, the Secretary must: ‘consider whether countries manipulate the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.’”
The Treasury report notes that nine countries are now on a ‘Monitoring List’ of major trading partners that account for a large and disproportionate share of the overall US trade deficit. The list comprises China, Japan, Korea, Germany, Italy, Ireland, Singapore, Malaysia, and Vietnam.
In June, US President Donald Trump followed this up by accusing the president of the European Central Bank of currency manipulation. He tweeted, “Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA. They have been getting away with this for years, along with China and others.”
Chicago Booth’s Initiative on Global Markets invited its US panel of economic experts to express their views on whether the trade balances between the United States and other countries are indeed the result of policies designed to maintain lower exchange rates against the dollar or otherwise tilt the playing field of global trade. The experts considered the case of the United States and Mexico specifically, as well as a more general hypothetical scenario.
Mexico-US trade and exchange rate