March 2014, Dean Baker

Dean Baker argues that taking aim at the persistent trade deficit, through which the United States exports labor demand, would help a great deal in moving the job market toward full employment. Moreover, he argues that trade is a “policy variable,” amenable to interventions that push back against competitors who place a fat thumb on the exchange-rate scale to keep their imports cheap and our exports expensive.

Baker notes various ideas that could counter currency management. First, the US could pass legislation that gave the government the right to treat currency management as a violation of international trading rules, leading to offsetting tariffs. Second, we could also tax foreign holdings of United States Treasuries, making the usual tactic of currency managers more expensive. Third, we could institute reciprocity into the process of currency management: If a country wants to buy our Treasuries, we must be able to buy theirs.

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