Wednesday, April 12, 2017

What did Donald Trump do today?

He made some interesting proclamations about the economy.

He declared the dollar "too strong"--a debatable point, but on a subject presidents are usually careful not to address publicly, because of the chaotic impact of their words. Although he claimed that the strong dollar was the result of confidence in his presidency, currency markets today immediately devalued the dollar.
Trump has been confused about how currency markets work in the past. In February, he called his since-fired national security advisor Michael Flynn (who is not an economist) at three in the morning to ask whether a strong or a weak dollar "is the good one." (Neither is inherently good or bad; a strong dollar benefits US consumers while a weak one benefits US exporters. But the reasons why the dollar buys more or less of other currencies are extremely important for a president to understand.)

In a related development, Trump completely reversed his position on China's currency manipulation. During the campaign, Trump had said that China was "raping" the United States by keeping its currency, the yuan, artificially cheap. Officially declaring China a currency manipulator--which he promised to do as a candidate--would have had legal ramifications for trade. But China's president, Xi Jinping, seems to have convinced him otherwise during their meeting this week.

Why would a normal person care about this?

  • Presidents shouldn't unnecessarily cause chaos in the financial markets.
  • Voters who approved of Trump's campaign stance on China trade may have thought he believed it himself--or knew what it meant.
  • A president who sees a personal compliment in every financial statistic--even ones he thinks are bad--is deluding himself.