Economics: Mnuchin sinks the dollar
Treasury Secretary Steve Mnuchin got a “searing” lesson in how “words can move markets,” said Peter Baker in The New York Times. Speaking to reporters last week at the World Economic Forum in Davos, Switzerland, Mnuchin made an “apparently offhand comment,” saying, “obviously a weaker dollar is good for us as it relates to trade.” The remark, a stark departure from decades of unwavering U.S. government support of a strong greenback, “ricocheted around the world,” and by day’s end, the dollar had plunged to a three-year low. Mnuchin, reportedly startled by the markets’ response, tried to walk back the statement the next day, and President Trump was compelled to weigh in, saying Mnuchin’s comment had been “taken out of context,” adding, “I want to see a strong dollar.” If Mnuchin hadn’t realized that his comments would be “flyspecked to an extraordinary degree,” he certainly understands that now. “His name appears on the dollar bill. But that does not mean it is safe for him to actually talk about the dollar.”
Give me a break: Mnuchin was just “stating the obvious,” said Jared Bernstein in The Washington Post. His comment, “though rarely spoken by people in his position,” makes eminent economic sense. There are some upsides to a weaker dollar, including for U.S. trade. When the value of the dollar goes down against the currencies of our trading partners, our exports are cheaper and our imports are more expensive. “All else equal, those relative price changes tend to improve our trade balance.” Mnuchin’s remark may have been valid, said Ferdinando Giugliano in Bloomberg.com, but the tumult it created shows he “still has much to learn when it comes to the etiquette of economic policymaking.” There is a reason that U.S. Treasury secretaries going back to Bill Clinton’s administration have blandly repeated their preference for a strong dollar. “Boring can be good, as it avoids unnecessary fluctuations.” Trump already has the whole world guessing about his trade positions. Sometimes “there are good reasons for sticking to the script.”
I’m not convinced that Mnuchin actually understands that, on balance, a weaker dollar isn’t good for the U.S., said Benjamin Cohen in TheConversation.com. His logic about trade is “familiar to any first-year economics student.” But those benefits depend on how traded goods are actually priced, and the upside “could be considerably smaller than anticipated.” Oil, for instance, is the biggest single product Americans purchase from overseas, and it is priced in dollars on the global market. Therefore, “a weaker greenback will have no effect at all on the cost of oil imports.” In the end, a weaker dollar “hurts more Americans than it helps,” said Rebecca Patterson in CNBC.com. Consumer spending comprises nearly two-thirds of U.S. GDP, and a strong dollar “keeps a lid on inflation,” which encourages spending and ensures low borrowing rates. Exports, which benefit when the dollar weakens, represent just 13 percent of GDP. President Trump has often focused on exporters in his economic rallying cries, “putting that corner of America first.” Surely he and his Treasury secretary understand that far more Americans benefit when the dollar is strong.