When Did A Weak Dollar Become Unpatriotic?

To put it another way: When did we decide the only U.S. export that matters is the almighty dollar?

In 1985 Treasury Secretary James Baker met with foreign ministers from the United Kingdom, France, Japan, and what was then West Germany at the Plaza Hotel in New York City to negotiate a reduction in the dollar’s value relative to these other currencies. The Reagan tax cuts, combined with Fed Chairman Paul Volcker’s inflation-fighting at the Fed, had since 1980 pushed the dollar up 44 percent against other major currencies. This was a disaster for U.S. exporters, who were then fighting a wave of imports from Japan, because a strong dollar raises prices for U.S. goods abroad and lowers them for U.S. imports. The trade deficit was still high enough two years later to inspire several Republican House members to hold a photo op in which they wielded sledgehammers to smash a Toshiba boombox (see above).

Notwithstanding the Toshiba-smashing, the Plaza Accords were a success. The dollar came down 40 percent over the next two years and eventually that shrank the trade deficit. But as Jeffrey Frankel, an economist at Harvard’s Kennedy School, observed in 2015, something like the Plaza Accord could never happen today:

In recent years, policy actions by a central bank that have the effect of keeping the value of its currency lower than it would otherwise be are likely to be called “currency manipulation” and to be considered an aggressive assault in the “currency wars.“ In light of the currency war concerns, the G-7 has refrained from foreign exchange intervention in recent years.

The G-7 partners in February 2013 even accepted a proposal by the US Treasury to agree to refrain from unilateral foreign exchange intervention, in an insufficiently discussed ministers’ agreement that we could call the “anti-Plaza” accord.

At the time Frankel was writing, the dollar had appreciated 20 percent over the previous year. It has mostly continued to rise ever since, and now, thanks to Jerome Powell’s inflation-fighting policies at the Fed, the dollar is stronger than it’s been in two decades. Yet there’s been almost no discussion of depreciating it—even before this latest bout of inflation—to ease pressures on U.S. exports. A too-strong dollar no longer is considered reason to smash a Toshiba boombox. (Except now of course you’d have to smash something manufactured in China, and Chinese imports tend not to carry Chinese brand names.)

In my latest New Republic column, I consider various reasons why a strong dollar’s impact on U.S. exports no longer worries policymakers, and conclude that somewhere along the line they decided the only U.S. export that matters is the dollar. You can read my piece here.