What Is a Trade War?
As part of his campaign for President, Donald Trump offered up some “tough talk” on China. Specifically, Mr. Trump has advocated for labeling China as a currency manipulator. There is a specific provision U.S. law for what happens to countries labeled as such. Labeling China would trigger those actions. Is Trump right about China currency manipulator status? As with many things in the law, there is a difference between the legal definition, and what is the common reality, if you will. China IS a currency manipulator under pretty much any definition you like, except the one that matters. Typically, a country lets the value of its currency fluctuate based upon market demand. China can, and does, ensure that the value of its currency does not vary outside of of parameters it sets. This is what currency manipulation is. The reason currency manipulation is a problem for America is that usually with a large number of imports, the exporter’s currency will start to increase in value relative to the importer. That makes the exporter’s goods more expensive and the importing country buys less of them. This keeps trade deficits smaller, and on a larger scale, makes the importing country’s own goods …