Economics
Currency Markets Expose a Crucial Flaw in Trump's China Tariffs
- Yuan decline undermines Trump’s foreign policy tool of choice
- Post-Bretton Woods, free-floating currencies blunt tariff cost
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When Donald Trump bemoaned that a weakening yuan had nullified some of the punitive effect of his tariffs on China, he was highlighting, unwittingly perhaps, a crucial flaw in his foreign policy tool of choice: In an era of free-floating exchange rates, currencies adjust so quickly they can offset the intended impact of higher levies before they even take hold.
It’s an inconvenient truth for the U.S. in its escalating trade war with the world’s only other economic superpower, and one that could complicate the president’s efforts to use tariffs as way to pressure America’s major trading partners into making concessions.