If there is a central policy theme to Donald Trump’s candidacy other than immigration — actually, there isn’t, but there are some particular things he bellows about — it’s China-bashing. The unifying principle is probably xenophobia; but anyway, China’s currency moves are about to become a US political issue. And pretty soon, I expect, people will point out that some liberals also used to complain about Chinese currency manipulation.
But that was a while ago — mainly in 2010. And the underlying situation has changed, a lot.
First of all, China has experienced a very large real appreciation since 2011, partly due to higher inflation than in its trading partners, partly because its dollar peg means that it has tagged along with the rising dollar (which was supposed to plunge due to QE, but never mind):
It’s true that China’s real exchange rate has trended upward for a long time, and that this didn’t lead to a loss of competitiveness until recently — mainly because of Balassa-Samuelson and other effects of rising productivity. But with Chinese growth slowing and the pace of appreciation rising — and with rising competition from other emerging markets — the past five years almost surely have brought a major reduction in competitiveness. It’s perfectly consistent to believe that China was destructively undervalued in 2010 but overvalued now.
Meanwhile, China’s domestic economy has clearly weakened, creating a clear case for looser monetary policy. It’s nothing like the situation in 2010, when China was struggling to contain an overheating economy.
We might also note that America is in a different situation too. I still believe it would be a big mistake for the Fed to raise rates, but the fact that we’re even close enough that it’s on the table means that we’re not as deep in the liquidity trap, and hence as vulnerable to foreign currency manipulation, as we were back then.
So if The Donald occasionally sounds like me five years ago, bear in mind that stuff has happened over those five years; I’ve noticed, but he probably hasn’t.