In the movie “Casablanca”, Signor Ferrari asks the proprietor of Rick’s Café Americain: “My dear Rick, when will you realize that in this world today isolationism is no longer a practical policy?” (Michael Curtiz, director)

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DIVIDING LINES

On America’s 2016 election campaign trail and thereafter, President Donald Trump’s impassioned populist rhetoric has encompassed striking slogans such as “Make America Great Again!” and “America First!” All United States patriots of course want their country to be great. Such wordplay, however, especially appeals to citizens wary of or hostile to phenomena such as “the establishment” (elites), globalization, and (overly) free trade.

Many of America’s current and proposed domestic programs and their consequences are not divorced from international ones. Lines between (and definitions of) “domestic” and “international” are not necessarily clear. Many so-called “economic” issues interrelate with political, military, and social arenas. Prior to America’s recent national election season, many observers across the political spectrum lamented the country’s (and world’s) substantial income and wealth inequality. In any case, let’s concentrate primarily on the international trade and currency front, even though other assorted US domestic as well as a range of global issues significantly entangle with it.

Most Americans praise “free markets” and “capitalism” as “good”, but they also want them to be “fair”. A currency level and trend can symbolize relative power and its changes. Thus a “strong” dollar may be praiseworthy (and excite national pride), and the country should not permit the greenback to become “too weak” or “feeble”. But why should Americans tolerate evils such as “unfair trade” and a “too strong” dollar? As in competitive sports, isn’t it right to have a “level playing field”? Surely massive persistent trade (or current account) deficits between two nations suggest something inappropriate in policies and practices may be going on! Can’t some protectionism for American industries be good, at least in the right circumstances?

Thus America’s President and many of his supporters loudly warn of changes in tariffs and taxes. They squawk about walking away from, tearing up, or renegotiating trade agreements. They hint America will respond to the currency manipulation or excessive depreciation engaged in by its trading partners.

However, all economic (political) language, policies, and behavior related to notions of goodness, fairness, and reasonableness (rationality) merely represent personal perspectives. So whether a given trade agreement such as the North American Free Trade Agreement (NAFTA) or the Trans-Pacific Partnership (TPP) trade deal treats the US fairly or appropriately, whether it is good or bad for America, is a matter of opinion. Whether a given US dollar cross rate (such as that between the dollar and the Chinese renminbi) or broad real trade-weighted US dollar level are “good”, “bad”, “too high” (“expensive”; “overshooting”), “too low” (“cheap”; “undershooting”), or “fairly (reasonably, appropriately) valued” (or near some allegedly natural, rational, logical, or equilibrium price) likewise express opinions.

Moreover, in the deeply interconnected and complex global economy and multipolar political world, even the mighty and zealous United States cannot institute many of its key programs on others without expecting a notable response (push-back) from others threatened or infuriated by them. After all, other countries around the globe, whether implicitly or explicitly, also generally place their nation first and foremost in their political and economic calculations. Most foreign countries (their leaders) do not want to seem too timid in their dealings with America. And not all Americans, or even all Republicans, applaud or even support the President’s policies, which themselves may change as time passes and negotiations proceed.
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A nation and its internal political groupings often manifest significant partisan quarrels, which sometimes become ferocious. Everyone knows that history likewise displays a continuum, from relative peace and harmony to various expressions of war, battle, and violence. America’s notable current divisions are wide-ranging. Divides exist within economics and politics, but also involve topics such as age, race, religion, gender, sexual orientation, and geography.

Widespread talk on the international stage of competitive depreciation, currency wars, and trade battles reflects the increasing strains on and within an increasingly fractured “global economic order”. The significant and wide-ranging internal economic divisions within America (and many other leading nations) to some extent mirrors and encourages such international economic (and political) tensions and changes.

Multilateral diplomatic discussions do not necessarily result in better (or worse) outcomes than bilateral ones. The current American Administration apparently prefers in the international economic (and political) realm to conclude one-on-one deals between countries (their strong leaders).

Some guides declare “life is a game.” Regardless of the faith of some luminaries, not all economic (or political or other cultural) arenas and interactions (including negotiations) are zero-sum games, or necessarily have clear winners and losers. Both (or most; or all) sides in a financial contest (whether commerce/business in general or international trade and currency in particular) may turn out to be winners (or losers) to varying extents. In any event, it is conceivable that particular sets of economic policies and responses to them can result (whether sooner or later) in unhappy (costly) outcomes for the nation promoting them, or even for numerous or a majority of countries (including those not directly participating in the fascinating discussions and artful deals on the main table).

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Rhetoric and Global Currency Trends (2-13-17)