In the two presidential debates that focused heavily on the economy, there was not a single mention of the Federal Reserve. This is clearly worrisome since the U.S. central bank has a huge impact on the economy. With the Federal Reserve largely to blame for the recent financial meltdown and the rapidly declining value of the U.S. dollar, this is an important economic issue that the presidential candidates should be addressing.
However, Mitt Romney seems to focus more on China’s currency than the U.S. dollar. During last Tuesday’s presidential debate, he pledged to declare China a “currency manipulator.”
On Day 1, I will label China a currency manipulator, which will allow me as president to be able to put in place, if necessary, tariffs where I believe that they are taking unfair advantage of our manufacturers.
The extent of the yuan’s misalignment is unclear but the value of Chinese currency has not significantly affected the U.S. economy. Simply put, foreign trade is not to blame for our economic woes.
Retaliation aimed at the value of Chinese currency will likely create more problems than it solves. Mitt Romney’s proposed tariffs on Chinese goods will hurt consumers and could trigger an unnecessary trade war. Taxes are tariffs that will ultimately get passed on to consumers in the form of higher prices for goods. The last thing we need is policies that would hurt struggling families trying to make ends meet during these tough economic times.
With China being one of the United States’ largest trading partners, a trade war would do immense damage to the U.S. economy. If China retaliates by buying goods from elsewhere, American exporters will be hurt in the process.
And don’t forget that China holds nearly $1.2 trillion in U.S. Treasury debt.
“The party that loses the most in a trade war is the one that has a big deficit. We have a big dependency on China,” said Axel Merk, president of Merk Mutual Funds, a Palo Alto, Calif.-based money manager specializing in currency investments.
Romney would be wise to focus more on the value of the U.S. dollar. It’s more than a little hypocritical to say that China needs to be punished for keeping the value of the yuan artificially low when the Federal Reserve is devaluing the dollar through numerous quantitative easing programs. As my colleague Dean Clancy writes on his Twitter page:
The dollar has lost over 95 percent of its purchasing power since the Fed was created in 1913. It’s time to take a hard look in the mirror and realize that U.S. Federal Reserve needs to stop devaluing the dollar before it’s too late.