Thread by @Brad_Setser

. @adam_tooze on one of my favorite themes -- the impact of the dollar's 14/15 rise on US manufacturing, the US recovery and, well, US politics. Continue to think the "manufacturing recession" of 15-16 is a bit under-appreciated

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https://twitter.com/adam_tooze/status/1144953663577657345

The dollar rise in broad real effective terms by about 15%. U.S. manufactured fell by about 15% -- this chart shows the ratio of manufactured exports to U.S. GDP over the period of dollar appreciation (a fall means exports are falling as a share of GDP)

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I like leaving out commodities b/c they have their own dynamic. Dollar price of oil matters more than the dollar/ euro, dollar/ yen, dollar/ yuan. But obviously the collapse in oil prices in 14 dragged down oil investment and was another drag on manufactures at the time

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impact on the broader economy mitigated by the fact that the US doesn't export that much: a 15% fall on 6% of the economy is different than a 15% fall on 10% of the economy. And unlike in 02-04, the strong dollar didn't have much apparent effect on imports

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But still end with a drag (from falling exports, so a fall in net demand for the US economy) from a rising manufacturing deficit of close to a p. point of US GDP from the dollar's rise.

more or less what theory would have predicted

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for a more formal treatment, the Fed did a nice note on this a few years back.

There is a lot of talk about the impact of automation on trade, but what shows up in the data is persistent impact of the dollar on manufacturing

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federalreserve.gov/econresdata/no…