Which country would benefit from a weaker dollar? Germany wants to sell their cars. China their phones. If Americans can't afford them any more, then a big market would disappear.
The US would benefit from a weaker dollar as it would protect what remains of our manufacturing base and also act as an export subsidy. Currency valuation, and in particular currency manipulation, is equivalent to a tariff or an export subsidy depending on which side of it you are on. Yes people like to pretend that if something goes up in cost 20 percent because of currency change that is somehow normal but slap a 10 percent tariff on something and that is completely different.
> The US would benefit from a weaker dollar as it would protect what remains of our manufacturing base
At equilibrium, a weaker or stronger dollar doesn't affect exports, it's just an exchange rate. What can affect exports is a weakening dollar.
In an inflationary disequilibrium, exports increase only insofar as foreign consumers are able to purchase domestic goods before those goods' prices have adjusted to inflation. In other words, exporters are unwittingly selling their goods for a lower price.
Absent inflation, exporters could have chosen to increase exports by intentionally lowering their prices. That they didn't suggests something about their marginal costs.
With inflation, the exporter has a similar benefit over its suppliers as the foreign consumer has over the exporter, namely buying goods with new money before prices have adjusted. As such, the exporter's suppliers are also unwittingly selling their goods for a lower price.
Whether this is beneficial depends on where one is positioned as new money propagates through the economy. Banks get it first, then to their borrowers, other financial institutions, and so on. The losers are those at the tail-end, who face higher costs but have not yet had their own prices bid up with new money: wage workers, those on a fixed income, etc.
The net effect of all this price manipulation is a wealth transfer from those who receive the new money later to those who receive it earlier.
> currency manipulation, is equivalent to a tariff or an export subsidy
While an export subsidy can also increase the quantity of exports, the larger economic impact of intentionally weakening the currency through inflation is very different.
None of them. It's a constant battle. I always hear the trope that we "owe" China money because they buy bonds but the entire reason they're buying bonds is to keep the Renminbi weaker than the USD.
Germany is a weird corner case where the entire reason for the Euro is to allow them to keep their currency artificially weak by using the rest of Europe's economy as a place to dilute their export power. The DM was getting relentlessly stronger against the USD and Sterling and when the conversion to Euros happened, major holders of DMs got absolutely hosed.
China is no longer a net buyer of Treasuries. They have begun to sell off their position over the last 5 years. And the renminbi is actually quite strong lately, the Chinese government is maintaining positive interest rates and allowing corporate defaults instead of money-printing.
China has sold off a net of 40 billion worth of treasuries in the past year. Less than a percent. "Sell off" is putting it exceptionally strongly. The Yuan is still in a very managed float position. It doesn't swing by more than a percent or two over a long horizon.
China buy bonds because they have a lot dollars and they have a lot of dollars because the trade deficit. What would you do with that money, buy a bond with interest or keep the cash under the mattress?
You can spend them, I suppose. The article mention they doing it now with the Belt and Road program.
You are right about the Euro. It's not the reason of the existence but it's the result.
China could spend them, yes. Or they could float the currency and allow places to purchase goods in their currency. Or they could allow people in the mainland to hold their own reserves of dollars and not set a fixed dollar buyback peg. The trade deficit between private corporations between the US and China doesn't need to have any bearing on the Party's dollar holdings. Saudi Arabia doesn't hold many treasuries and they receive a whole lot of dollars.
US self sufficient manufacturers who don't rely on commodities would benefit with a weaker dollar.
US consumers will get fucked with a weaker dollar. Imagine having to pay $7 a gallon for oil instead of $3.
There is another consequence. A lot of other countries will become "rich" all of a sudden. Which means they won't use US dollar as a medium of exchange and America would have to "earn" by exporting. Which means people will have to work a lot more to produce more for exports without consuming ourselves.
Point taken but the oil example isn't the best example on imports as we have since about 2010 really dropped imports with Obama's "All of the above" energy strategy which included opening the Arctic to drilling twice. Here is an example article on the subject: ...U.S. Exports More Petroleum Than It Imports In September and October
https://www.forbes.com/sites/arielcohen/2019/11/26/making-hi...
Oil is a great example because oil is truly a global commodity. The demand for oil exists from all 196 countries of the world.
If USD devalues too much (but is still reserve currency), other countries will become richer aka, they can buy more dollars for fewer of their own fiats. Which means they can import more oil by converting more and more of their fiat to dollars. Which means demand for oil internationally will go up while supply remains about the same, causing price of oil to go up, regardless of where it is produced.
If USD devalues and other countries decide to abandon the dollar for trade in favor of say Oil-coin, US will lose access to international oil until it "earns" oil-coin somehow. How does America earn oil-coin? By exporting something. Since America can produce so much oil, the producers will try to export oil for oil-coin. Which means increased global demand and thus rising prices again.
US could shut down all exports of oil and only use it domestically and shun oil-coin entirely. But this means that
a. US can't import other things because of lack of oil-coin. So we will suddenly have severe shortages. Oh a bad disease in one year caused all potatoes in America to die? Tough luck sustaining all the food processing and chips companies. They can't do a stop gap import potatoes since we don't have any oil-coin. You can expand this experiment to all kinds of things such as stent-valves, rubber for tires, coffee. Our rich lives are truly there because other countries are working for it.
b. US energy supplies will be limited by domestic production and domestic supply and demand characteristics. Oh, we have such a great economic boom that increased oil demand but a few oil wells are down for repairs a few quarters? Boom, spike in oil prices again despite being self-sufficient. Another recession beckons since industries can't function with such high oil prices.
This globalization thing is not very simple. It may have caused a lot of grief, but it's also a very good distributed system that's preventing us from going back to shortages like medieval times. We're not dying just because there's a 2-3 year span of famine any longer because there's always somewhere else to get it from.
A 10% drop in currency would in your example, assuming no cost of shipping oil, US would go from 3.00 to 3.30 at 20% drop would mean 3.60 and even a US currency drop of 40% only gets you to $4.20. The data on trade indicates that countries that cheat on trade have epic growth rates and countries that do the "free trade" have close to zero growth or even declines. The data indicates local manufacturing has synergistic effects that massively outweigh the additional costs to consumers. See economist Ha-Joon Chang.
I wish prices were directly proportional to value of currency. But it isn't.
In the oil price example, drop in value of USD could cause prices of oil to increase (by how much? We don't know. There are entire commodities industries who hire quants to figure this out every day).
Assuming price of oil increases by 10%, price of chicken feed would increase by a%, causing an increase in price of chicken by b%, causing an increase in price of shipping chicken from farm to factory by 10%+a%+b%, the factory whose workers need higher wages now (by a total of c%) because of higher cost of living, factory will now have to sell their chicken for 10%+a%+b%+c% to a shipper who will need to pay another 10% who will pass this cost on to McDonalds who will have to pay 10+a+b+c+10 to get a chicken patty.
The dollar menu suddenly become a $5 menu.
As contrived as this example may sound, this is the reality in many "emerging" markets and smaller developed markets. We are so oblivious to real inflation and price fluctuations simply because we are used to getting stuff for cheap from whereever it is available because we can import any time. No shortages for any industry or any consumers here.
While I agree that having healthy domestic manufacturing is good, we need to be careful what we wish for because losing the reserve currency status is the last option of them all. It's truly devastating and you only need ask United Kingdom and how they lived for decades with rationing in order to pay debts and earn foreign reserves.
The link below is on historical gas prices. Also include a link on US dollar to Euro. Depending on the state we are currently at about 2.50 and have been over 3.50. The dollar menu going to 5 because of a 10% or 20% drop in currency doesn't seem likely. We, and also other countries, can have fairly big currency changes without much internal inflation or deflation(can depend on country size). A number of countries have actually deliberately devalued their currency in order to encourage growth. The question that is more interesting is can we lose high productively jobs(manufacturing...) and still keep high standards of living. The data indicates we cannot.
Those links don't even go to the dates of US defaults in 70s and 30s.
> We, and also other countries, can have fairly big currency changes without much internal inflation or deflation(can depend on country size). A number of countries have actually deliberately devalued their currency in order to encourage growth.
This is all applicable to the reserve currency or massively exporting countries. Not to importing countries, which the US is. The US cannot stop importing without causing massing inflation at the retail counter. No more $10 t-shirts and $100 sport shoes if they are made here.
I would recommend reading the article to truly understand how subsidized our lifestyle is.
US manufacturers and service providers would benefit from a weaker USD. It would mean our exports are, relatively speaking, cheaper for others to buy with USD. US consumers would be hurt as it would mean imports are more expensive for US consumers.
If we have a weaker USD, doesn't that make US manufacturers' costs increase (measured in USD), and their finished goods prices increase (measured in USD), resulting in global prices staying about the same (measured in whatever foreign currency).
I mean, labor prices won't move quickly, and existing capital equipment was purchased with stronger dollars, but eventually new equipment will be needed at higher cost, and people will demand higher wages to meet their previous spending power, and anyway, american manufacturing tries to reduce labor as far as possible.
