The dollars are worth whatever the relative foreign policies set. If China has a policy to depreciate against the dollar, by printing Yuan and buying dollars with them (what happens now) then the dollars end up being "worth" more, but the underlying capacity to produce of the U.S. hasn't increased, indeed it starts to decrease as people start to buy cheaper foreign output.
So it's a bit disingenuous to say "well, people like these cheap goods" -- I mean, of course they do, but the story here is the foreign capital inflows which create an excessively expensive currency leading to a preference for certain types of goods. The whole ground is moving underneath you as a result of international policies and you don't see it, you just see people "choosing" to act.
The US manipulates the currency market in other, more powerful and more fundamental ways, by controlling the global currency.
You do not need to hold foreign reserves, you do not need to pay exchange commissions, you are not blocked to do business with third parties by having capital flows stopped ...
I don't think you understand what you are saying here. Yes, the U.S. has the world's reserve currency _because_ it allows unrestricted foreign capital inflows and has a long respect for property rights and rule of law. Try, as a foreigner, buying a house in China. It's illegal. Try, as a foreigner, to buy a house in the U.S. -- no problem. The U.S. opens it's markets to the rest of the world to purchase American assets while the rest of the world closes its markets. If you are a foreigner, you can buy all the corporate and government bonds you want. You can repatriate money out of the U.S. in unlimited amounts. In China, this is illegal. They don't even allow their own citizens to move more than a small amount of money out of their country. There is a great black market of people smuggling money into and out of china because the government restricts cross border capital flows -- like hiding money in your socks or trick suitcases, bribing border guards to let you through stuff.
This is why the U.S. is the reserve currency, and it is also why we have a trade deficit, because as the rest of the world's capital pours into the U.S., that forces our currency to be overvalued enough to have an equal sized trade deficit on the way out.
Whereas you seem to think that that the U.S. "manipulating" it's currency by making U.S. currency more attractive to hold for foreigners -- is somehow a counter or offsets what China is doing, which is making its currency less attractive to hold.
But it's not, these two work together to cause the same distortion and large trade deficits.
Your whole argument comes down to "the dollar is overvalued". What does this mean? Bad things and good things for the US. You are not going to mention the good things, so I will.
For starters, you are using worthless (overvalued) papers to acquire real goods. The American consumer is getting a bargain.
You are also able to buy foreign assets at firesale prices (yes, for all your grandstanding, the US is not the only economy allowing direct foreign investment)
Having the world reserve currency (something the US has allowed / promoted to happen, out of interest) gives the US unfair operative advantages, already mentioned above.
The appetite for the dollar allows the US to be largely independent from the financial markets. It also allows the US to get favourable credit ratings, and financing terms which are unthinkable for other economies. This has been happening for decades, and is continuing until we reach a certain breaking point Incidentally, it is possible that this trade conflict is motivated by that breaking point getting closer.
To summarize: the US has enjoyed unfair, enourmous trade advantages for decades. It has been indulgent with its finances because the market has allowed it to be overspend. And now it wants the world to increase its already existing advantages, by claiming for "fair trade".
> To summarize: the US has enjoyed unfair, enourmous trade advantages for decades. It has been indulgent with its finances because the market has allowed it to be overspend. And now it wants the world to increase its already existing advantages, by claiming for "fair trade".
No, so this is where you are getting signs confused. An overvalued dollar is the same as having a trade deficit. Arguing to reduce that trade deficit is the same as arguing for a weaker dollar. The argument goes "the dollar is too strong and it should be weaker", not "you are saying the dollar is too strong and then you want it weaker also?? How dare you ask for both!" When you make these types of arguments, it worries me because it makes it sound like you aren't groking that I am advocating for a cure to a disease.
> Your whole argument comes down to "the dollar is overvalued".
Well, I think my argument is explaining _why_ we have a stronger dollar -- because we have open capital markets while our trading partners do not. This creates an asset demand for dollars that increases total demand for dollars beyond that which would be consistent with balanced trade.
> You are not going to mention the good things, so I will.
I guess I'm old school in thinking that any systemic distortion is a net harm. For example, you may not realize this, but the strong dollar doesn't actually allow us to consume more, because it reduces our income and forces government benefit spending to bridge the gap. If you look at patterns of household consumption, they have not gone up -- the big gain in consumption was higher healthcare costs, but that's a price inflation thing. Basically those areas that lose out to globalization end up receiving social security disability dollar for dollar.
Next, the trade deficit is primarily offshoring, so instead of buying a wrench made in the U.S., we are buying an american branded wrench made in China. How many chinese brands can you name? You are buying the same american products, except they are no longer made here.
But, it's the same wrench, and in real terms it costs the same. We are not getting an extra wrench, there is no "extra consumption" -- there is just loss of domestic production followed up with increased foreign purchases as large numbers of formerly productive people drop out of the labor force and rely on government assistance. We just stopped producing something domestically and bought it overseas. It's not extra consumption.
How can we afford to buy it? Well, it's those extra government benefit expenditures to make up for all the income lost, together with lower interest rates from foreign demand for our assets and then we get asset bubbles as a side effect. China, more than anyone else, was responsible for the great recession.
That extra government debt also crowds out public spending on public goods -- take a look at our hollowed out cities. So, on net, we are not enjoying any more consumption, rather the ability of our nation to produce is slowly being dismantled and shipped overseas. That's an unmitigated bad.
It is also destabilizing, politically, as we have large swaths of the country that are being written off and this breeds radicalism. Also, it's sad to turn our backs on our fellow americans who worked in factories that have been shutdown and are now living on food stamps and meager benefit payments in broken down cities.
So it's a bit disingenuous to say "well, people like these cheap goods" -- I mean, of course they do, but the story here is the foreign capital inflows which create an excessively expensive currency leading to a preference for certain types of goods. The whole ground is moving underneath you as a result of international policies and you don't see it, you just see people "choosing" to act.