Elizabeth Warren and Donald Trump agree on at least one thing: America’s currency problems are hurting workers.

Elizabeth Warren and Donald Trump agree on at least one thing: America’s currency problems are hurting workers. By Robert Scott.

Elizabeth Warren released an “American jobs” plan recently. It includes several trade and manufacturing policies intended to benefit American workers and companies. Wall Street responded with righteous indignation, which suggests she may have hit a nerve.

One element of her plan most likely explains Wall Street’s angry reaction: a call to tackle America’s overvalued dollar. …

The president gives lip service to complaints about the strong dollar. He says that China has given itself a “tremendous” competitive advantage by weakening its currency. But his administration, including Treasury Secretary Steven Mnuchin — a Goldman Sachs alum — and a team of Wall Street veterans, does nothing in response.

Several economists have estimated that the dollar must fall by roughly 27 percent in order to rebalance trade flows in three to five years. Such a revaluation is possible, however, and there are different means to accomplish this.

One option is federal intervention to buy foreign currency assets, which would address the misalignment driven by flows of overseas public and private capital. Or, the United States could impose a withholding tax on the profits and dividends earned by foreign investors, both public and private. …

The executive branch could also negotiate directly with its trading partners to realign the dollar against competing currencies, a precedent set by previous Republican administrations. In 1971, President Richard Nixon imposed a 10 percent import surcharge that coerced allies into raising the value of their currencies. And in 1985, Congress passed tariff legislation that provided leverage for President Ronald Reagan to negotiate the Plaza Accord, yielding a 30 percent drop in the dollar’s value.

Close, but still not getting to the root of the problem. The US dollar is uniquely overpriced because it is the world’s reserve or trading country. The whole world trades in US dollars. When Australia buys oil from Saudi Arabia, it has to pay in US dollars. This creates a demand for US dollars that bids up the price of the US dollar. Hence US workers have a price disadvantage internationally — but the US government and private banks get more free stuff because they manufacture US dollars, so they don’t talk about that 😉