US restore competitiveness dollar!
The question of whether the US should, could and would take action to weaken the dollar in an effort to boost US competitiveness is top of mind, according to Goldman Sachs Research.
In the latest episode of the Top of Mind at Goldman Sachs podcast, Allison Nathan sits down with the Peterson Institute’s Joseph Gagnon and the Council on Foreign Relations’ Brad Setser to understand if such actions or trade war escalation, could lead to a global currency war.
In analyzing how the US might fight a currency war to combat dollar strength, Gagnon tells Nathan, “For us to fight back, we would have to buy foreign currency, say, Chinese Yuan and invest that in Chinese government bonds, but how would that look politically?”
Overall, both experts believe a strong dollar and the associated US trade deficit are cause for concern, but see low odds of US foreign exchange intervention that triggers a currency war, and Goldman Sachs analysts agree. But Gagnon and Setser point out that China has been managing the Yuan stronger, not weaker than it otherwise would be, and so trade-war escalation that motivates a sharp Yuan depreciation could be such a trigger.
As Setser says, “The complexity for the US…is the more the US escalates the trade war, the more pressure there is for a weaker Yuan...And the challenge for the world is that...puts more pressure on other economies to depreciate their currencies to avoid losing out to China.”
