Trumpism, Economically Speaking, Is Here to Stay
A demonstrator holds a “Trump 2020” flag during the 59th presidential inauguration at Black Lives Matter Plaza in Washington, D.C. (Photographer: Eric Lee/Bloomberg)

Trumpism, Economically Speaking, Is Here to Stay

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A weak dollar isn’t the end of the world and America needs to push back on China, according to the person poised to lead U.S. economic policy in the Biden administration. The Trump era is over, right?

For all the talk about turning the page on division and unilateralism, some policies critical to Asian investors  may not change dramatically under President Joe Biden. That’s one way to view the remarks of Janet Yellen, Biden’s pick for Treasury secretary, in her confirmation hearing before the Senate this week.   

Yellen avoided committing to a “strong” dollar as many of her predecessors have.  (Steven Mnuchin was a rare exception.) But she wouldn’t push for a weak dollar to gain a trade advantage, either. Rather, Yellen has signaled that she isn’t averse to dollar softness — if that’s where markets are headed. That’s a change from Donald Trump’s view that a robust buck harms exports, but neither he nor Mnuchin ever backed their desire for a weak currency with action. In practice, there’s unlikely to be a lot of daylight between the two administrations on this issue. 

Economic forces weighing on the dollar, chiefly ultra-low interest rates and the Federal Reserve’s relatively aggressive monetary policy, will encounter little resistance from Yellen. “Although the Biden administration may not specifically seek a weaker USD, further depreciation is likely,” UBS Global Wealth Management said in a note after her testimony. The greenback is near a six-year low against a basket of major currencies, according to the Bloomberg Dollar Spot Index.  

The U.S. mostly refrained from intervening in currency markets in the past couple of decades, regardless of which political party held the White House. The same went for most important economies. The time when capitalist governments could bend markets into alignment with currency goals has passed. 

The major outlier is China. While official reins on the yuan have been steadily loosened since 2005, when Beijing ended a peg of 8.3 yuan to the dollar, little happens without approval from the central bank. The yuan’s broad movement does respond to market pressures and fundamentals, like interest rates and growth. But the People’s Bank of China often finesses the moves, sets parameters and has been known to change trading rules overnight. (The yuan strengthened about 7% against the dollar last year, reflecting Beijing’s more modest stimulus compared with the U.S. Most Asian currencies have also appreciated.)  

Yellen’s comments on China to the Senate Finance Committee were forthright and frosty: “We need to take on China's abusive, unfair and illegal practices. China is undercutting American companies by dumping products, erecting trade barriers, and giving illegal subsidies to corporations. It's been stealing intellectual property and engaging practices that give it an unfair technological advantage, including forced technology transfers. And these practices, including China's low labor and environmental standards, are practices that we're prepared to use the full array of tools to address.”

Yellen speaks to the political reality that China has few, if any, advocates — and many adversaries — in Washington. This tone marks a departure from her days at the Fed. Central bankers the world over tend to take pride in their collegiality, and see themselves as the adults in the room making things work while politicians sound off.

The Trump era didn’t invent D.C. antagonism toward Beijing. The relationship between the world's economic powers was growing strained by the end of the Obama administration. They have, nevertheless, intensified over the past four years. Yellen called China “our most important strategic competitor.”

This doesn’t suggest that investors should expect continuity at Treasury on all things. There are important differences on fiscal policy, the minimum wage and climate. Expect programs to be developed more professionally, presented with less bluster, and packaged in a way that American allies can support. 

Yellen’s signature will appear on the nation’s banknotes, but those bearing Mnuchin’s aren’t going to be pulled. The past will be recognizable at the Yellen Treasury. This is evolution, not revolution. 

In reality, the strong dollar policy has taken a back seat during global emergencies such as Japan’s banking crisis in 1998 and the collapse of the euro in 2000,as I’ve written.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.

©2021 Bloomberg L.P.

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