Thread by @Brad_Setser

President Trump, in his rhetoric, is increasingly defining "currency manipulation" broadly. More or less as any depreciation of the currency of a trading partner that he doesn't like leads to cries of "manipulation."

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bloomberg.com/news/articles/…

That in many ways is the opposite of the approach I recommend in my recent policy brief. I would define "manipulation" narrowly, as intervention in the foreign exchange market to maintain a large surplus.

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bloomberg.com/news/articles/…

I think manipulation has to be defined narrowly if you want to credibly put a true sanction on manipulation -- and I do. I recommend Bergsten/ Gagnon style counter-intervention.

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piie.com/newsroom/press…

Getting rid of manipulation -- narrowly defined -- wouldn't end the dollar's overvaluation right now. That comes primarily from monetary and fiscal policy differences between the U.S. and Europe ...

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The goal? To deter countries from returning to the intervention of 03-12 if the dollar changes direction. Remember there was a time when global reserve growth was over $1 trillion a year, with inflows into the US of 4-6% of U.S. GDP ...

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Some question whether the dollar has any impact on trade flows (prices adjust, it is really savings and investment, and so on). I am pretty sure it does -- U.S. manufacturing exports have fallen by a pp of GDP since the dollar appreciated in 2014 ...

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U.S. exports of manufactures will be roughly at their 1990 level (as a share of GDP) in 2020 ... that's a slightly strange outcome of globalization, one that I think reflects a set of policy choices not just the "market"

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What about exports of IP? The US surplus there is actually fairly small (under 1% of GDP, counting "other business services") and stagnant over time. The surplus in the offshore profits of US firms is bigger, but still falls short of covering the deficit in manufactures.

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A technical point to end -- the FDI income surplus (mostly from profits booked in tax havens) and services surplus hasn't grown after the dollar appreciated in 14. It actually moves with the dollar a bit

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