The rising value of the U.S.
dollar on foreign exchanges has generated anxiety in the global financial
community, foreign governments, and the media. Reports suggest some of Donald
Trump’s campaign advisors are considering ways to devalue the dollar should
Trump triumph in November’s election. Commentators at the Washington Post and the New York Times quickly reacted to those
reports, calling such policies quackery and “economically destructive.”
However, there is one way the
U.S. Government could engineer a gradual adjustment in the value of the dollar
that would boost the domestic economy without any of the dangers that worry the
media pundits. That solution is called the Market Access Charge or MAC.
The MAC is an innovative,
internationally legal, centrist economic policy based on solid economic
principles that would solve many of America’s key problems today.
The MAC was prepared by experts
from the Coalition for a Prosperous America (CPA), the Economic Policy
Institute (EPI), the Peterson Institute for International Economics (PIIE), and
the World Bank (IBRD) working together in their personal capacities for a
better America.
The legislation for the MAC
that they created was presented to the US Senate on a bipartisan basis in 2019.
Their proposal has received favorable commentary from many including, for
example, the American Compass, the Coalition for a Prosperous America, the
Reshoring Initiative, the Wall Street Journal, and the Washington Post.
Furthermore, in his most recent book, former USTR Robert Lighthizer noted the
MAC as one of the most promising ways to solve our trade deficits and many
associated problems.
Unfortunately, some of
America’s key trade policies today are based on the implicit assumption that
exchange rates are still determined as they were over 200 years ago when the
Scottish philosopher David Hume explained the mechanism by which exchange rates
were determined in a way that created a strong link between exchange rates and
balanced trade.
However, with the demise of the
gold standard, and with the emergence of global foreign exchange
markets with 80-90 times the turnover of global markets in real goods and
services, the link between exchange rates and balanced trade has been lost.
Today, America needs a policy to
restore the link between exchange rates and balanced trade.
The urgency of this need is
seen in the following: Compared to the US dollar, the currencies of China and
Japan are now 40-60 percent cheaper than they would be if the yuan and yen were
set at trade-balancing levels. As a result of exchange rate distortions like
these, we Americans spent nearly one trillion dollars more on imports in 2022
than we earned producing exports.
By destroying the
competitiveness of America-made goods both here and abroad, today’s distorted
exchange rates have also created trillions of dollars of debt that our children
will have to repay. In fact, our net debt to foreigners is currently almost $20
trillion dollars – over 70% of GDP.
Excessively cheap foreign
currencies relative to the dollar are also the key source of related problems
including millions of lost jobs, tens of thousands of closed factories,
economic growth that on average has slowed by half since the 1960s, lower tax revenues,
and higher government expenditures to support our factories, farms, banks, and
workers who are suffering as a result of trade deficits.
The MAC would fix these serious
problems by collecting a small charge of about two percent on the excessive
inflows of foreign-source money. This small charge would be just enough to
eliminate much of the average gap between the low interest rates abroad and the
higher interest rates in America. By taxing away the difference between US and
foreign interest rates that drive largely speculative inflows, the MAC would
keep inflows of foreign-source money consistent with our real need for foreign
capital.
The MAC would also allow the
Federal Reserve to maintain higher domestic interest rates when needed to fight
domestic inflation without stimulating the massive inflows of foreign-source
money that today are undermining its inflation-fighting efforts and risking yet
another recession.
The sooner the MAC is approved,
the sooner it can begin to help fix these and the following problems facing
Americans today. In sum, implementing the MAC will:
·
Accelerate economic growth by eliminating the current trade deficit
drag that reduces our GDP growth rate.
·
Restore millions of middle-class jobs for Americans who have lost their jobs
because of made-in-America goods that can no longer compete with imports
because of the artificially cheap currencies of countries like Japan and China.
·
Reduce income inequality and socio-political fragmentation by giving more Americans
the opportunity to earn middle-class incomes.
·
Increase tax revenues by hundreds of billions of dollars per year
– all paid by foreign speculators, not by Americans.
·
Make the Fed’s efforts to fight inflation more effective by discouraging excessive
inflows of foreign-source money – inflows that increase domestic credit
availability just when the Fed is trying to tighten credit.
·
Reduce inflation by increasing the efficiency of making goods in America, by
increasing domestic competition by keeping more US businesses in operation, and
by reducing the Government’s need to print money to help failing banks,
companies, and families who have lost their jobs.
·
Reduce
the $3 billion dollars per day that the Government spends on interest payments.
·
Sharply
reduce the US budget deficit and start reducing our huge
outstanding public debt.
·
Finance urgently needed government investments in physical and social
infrastructure – without raising domestic taxes.
·
Support the development and production of advanced technology goods in
America, including
the equipment and products needed to meet our environmental goals, to enhance
our international security, and to improve our health at more affordable costs.
Implementing the MAC as soon as possible will help prevent our outdated international trade and currency policies from tanking our economy and the country we love
John R. Hansen, PhD
International Economist
World Bank Economic Advisor (retd.)
Alexandria VA
June 24, 2024
