Switzerland: The Other Currency Manipulator
Last night, Mitt Romney once again declared that he would name China a currency manipulator on “day one” of his presidency and impose tariffs if the Chinese won’t let their currency appreciate. So why is Romney so soft on Switzerland, which has an explicit policy of weakening its currency?
It’s not like Switzerland’s currency manipulation is a secret. Here’s a BBC headline from last year: “Swiss National Bank acts to weaken strong franc.” As the BBC noted:
The Swiss National Bank (SNB) has set a minimum exchange rate of 1.20 francs to the euro, saying the current value of the franc is a threat to the economy. The SNB said it would enforce the minimum rate by buying foreign currency in unlimited quantities.
Unlimited quantities! If that’s not brazen currency manipulation, I don’t know what is.
What’s more, Switzerland is manipulating its currency for the exact same reason China does: to help exporters gain a price advantage. And Switzerland is a big net exporter, with a current account surplus (exports minus imports) of 12 percent of GDP, compared to just 3 percent for China.
Why aren’t we freaking out about Swiss currency manipulation? Probably because Switzerland’s small scale helps us understand what a manipulated currency really means: cheaper Swiss goods for U.S. consumers. An artificially weak Swiss franc is bad if you’re an American chocolate producer, but it’s good if you’re an American chocolate consumer, and way more of us consume chocolate than produce it.
With China, we somehow get this backwards. In last night’s debate, President Barack Obama bragged that he imposed a tariff on tires that China was selling us too cheaply. That’s nice if you’re one of the tire manufacturing workers whose job was saved. But if you’re someone who uses tires, the president’s policies stopped you from getting a deal. So many of us missed out on a deal that American consumers lost $900,000 for every job saved. Yet Romney is demanding even more actions like that. It’s nuts.
China’s currency manipulation isn’t a free lunch. The big losers are consumers in China, whose standard of living is reduced because they overpay for imported goods. (Though not as much as they used to: as Evan Soltas notes, China has been letting the Renminbi appreciate over the last few years, and it's not as undervalued as it used to be.)
The Chinese people have excellent reason to demand that China let the Renminbi further appreciate. But there’s no reason for our presidential candidates to focus on it.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.