A 45% tariff on Chinese exports? Donald Trump’s out-of-date, misguided obsession with China’s currency

This from New York Times reporter Maggie Haberman: “Donald J. Trump said he would favor a 45 percent tariff on Chinese exports to the United States, proposing the idea during a wide-ranging meeting with members of the editorial board of The New York Times.”

At the heart of Trump’s reasoning is that China is a massive currency manipulator. A cheater. Stop the cheating, and the American worker will again be great. Or something like that.

Republican presidential candidate Donald Trump speaks at a campaign rally in Claremont, New Hampshire January 5, 2016. REUTERS/Brian Snyder.

But is it so clear that China’s currency is terribly undervalued, if at all, versus the US dollar? Last year the International Monetary Fund said the yuan was no longer undervalued, as did the Peterson Institute of Economics. Likewise the Wall Street Journal pointed to a report from the Boston Consulting Group that said “manufacturing costs in China had risen so much they were within 5% below those in the U.S.; and it went on to predict that by 2018 manufacturing will be a bit cheaper in the U.S.”

Indeed, as my AEI colleague Derek Scissors points out, “Most people who follow the issue now agree the yuan is overvalued versus the dollar,” adding that rising foreign exchange reserves showed the yuan was undervalued for years, but now reserves are plummeting.

And as for the link between Chinese currency manipulation and jobs, this from Scissors:

China devalued the yuan and was labeled a currency manipulator in 1994. American unemployment remained low and labor force participation very high for five years afterward, until the dotcom boom turned to bust. From 2005 to 2013, China slowly made the yuan more valuable against the dollar, as American protectionists demanded. Yet U.S. unemployment rose for most of the period and labor force participation declined throughout. China steals huge amounts of intellectual property and large portions of its market are sealed off from American goods and services due to financial subsidies and limits on competition. These are far bigger problems than the value of the yuan.