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Brad Setser
@Brad_Setser
, 4 tweets, 2 min read Read on Twitter
I guess technically the strong dollar policy isn't over until the Treasury Secretary says that a strong dollar isn't in the interest of the United States ...

But for all intents and purposes the strong dollar policy has already ended ...
The strong dollar policy in the past was also a "only the Treasury Secretary talks about the dollar" policy.

That's clearly not been the case for some time ...
And, per @jnordvig, the market isn't moving much on the President's verbal intervention these days

@jnordvig The FT (@colbyLsmith and @bhgreeley) also had a good article earlier this week on why it is difficult for the U.S. to push the dollar down right now.

Hint -- look at JGB and bund yields ...

ft.com/content/9d2713…
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More from @Brad_Setser see all

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Brad Setser
@Brad_Setser
Krugman has identified four reasons for China's persistent bilateral surplus with the U.S.: "Hong Kong, macroeconomics, value-added, and oil"

I want to expand a bit on "value-added" point, and link it to macroeconomics ...

China's traditional position at the end of Asia's electronics supply chain means that its bilateral surplus with the U.S. effectively embeds within it much of Asia's overall surplus (Vietnam may be playing the same role now too).

2/x
It isn't just that China is importing a lot of microchips, it is that China is importing microchips from countries that themselves run large external surpluses (Korea and Taiwan and Singapore especially)

3/x
Read 14 tweets
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Brad Setser
@Brad_Setser
The U.S. Treasury it seems has decided to name China a currency manipulator roughly 12-13 years after it should have first named China, and roughly 5 years after China stopped manipulating ...

(1/x)
The standard definition of manipulation these days is intervention (buying foreign exchange in the market using the government's balance sheet) to maintain a large (more than 2% of GDP per the Treasury's latest fx report) current account surplus.
China first met that threshhold in late 2003, but it was close -- the current account (as now measured) only just topped 2% of GDP (China's methodology has changed over time).

But there was no real doubt from 2005 to 2008 (and again the years immediately after the crisis)

3/x
Read 11 tweets
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Brad Setser
@Brad_Setser
The U.S. faces one fundamental problem in a currency war with China: right now, the market wants to push the yuan weaker, and the more the U.S. escalates, the more the market will test the PBOC ...

ft.com/content/9d24c1…
a bit more color ...

China clearly met the current criteria for manipulation from 2003 to 2013 ...

but it hasn't been consistently intervening to block appreciation over the last five years.
The Treasury though is operating under a different theory of the case, namely that China should be as aggressive in resisting pressure on its currency to depreciate (now) as it was in resisting pressure for appreciation during the China shock years.

home.treasury.gov/news/press-rel…
Read 12 tweets

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