Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers. A shorter version appeared on February 21st in Project Syndicate.
From CNNMoney, President Trump:
“With Mexico we have $70 billion in deficit. … It’s unsustainable. … We’re not going to let it happen, can’t let it happen,”
As the Administration mulls over possible trade actions against China, it is important to concede official trade statistics do provide in some sense a misleading picture of US-China bilateral trade — but not misleading in a way such that if corrected bolsters the Administration’s arguments.
If we count only the import side and not the export side of re-exports, as some in the Administration have suggested, we might as well go “whole hog” and redefine the trade balance completely: Let’s count imports, but not exports.
Figure 1: The trade balance defined as net exports/GDP (blue), and the trade balance excluding exports (red). Source: GDP advance release for 2016Q4, and author’s calculations.
One of the responses to the financial turmoil of 2008 was new legislation and regulation intended to prevent such a disaster from recurring. These measures include the Dodd-Frank Act of 2010 and the third international accord from the Basel Committee on Banking Supervision of 2010-11. But today there are powerful voices seeking to amend or overturn these measures. President Donald Trump said on December 12:
We have to end Dodd-Frank…. The head of the banks, they’re petrified of the regulators….I mean, unless you have 5 time what you want to borrow, they don’t lend you any money. They’re afraid to loan people money and those are the people that should be able to borrow.
And Representative Patrick McHenry (R-NC), Vice Chair of the Financial Services Committee, wrote on January 31:
Agreements like the Basel III Accord … turned into domestic regulations that forced American firms of various sizes to substantially raise their capital requirements, leading to slower growth here in America.
Here I review the motivations for Dodd-Frank and Basel III and some of the proposals to amend or replace them.
[Correction to title: it’s been pointed out that the National Guard will not necessarily be empowered to actually deport individuals; they can only have “authority to investigate, identify, apprehend, arrest, detain and conduct searches”. The actual deportation (transportation to port or border) would presumably be undertaken by other agencies. MDC 2/18 10:51AM Pacific]
What are the fiscal and economic implications?
Judy Shelton argues that “Free trade needs sound money”:
…[T]he time has come to develop a comprehensive approach to international monetary reform compatible with genuine free trade under free-market conditions. If markets are to function properly, money needs to convey accurate price signals; that won’t happen as long as governments can manipulate exchange rates.
Judy Shelton on currency manipulation.