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Trump’s Cross of Gold

US President Donald Trump wants to compress the United States trade deficit and enhance the competitiveness of domestic manufacturers by using tariffs to raise the price of imported goods. And the fixed exchange rates he needs to achieve that goal are the real reason behind his nomination of Judy Shelton to the Federal Reserve Board.

SINGAPORE – There are now scores of efforts to psychoanalyze US President Donald Trump’s nomination of Judy Shelton to the Federal Reserve Board. Some emphasize Shelton’s fidelity as an early adviser to the Trump campaign. Others point to her conversion into “a low-interest-rate person.” Still others highlight her advocacy of the gold standard as insulating US monetary policy from an unreliable Fed.

These interpretations all miss the point, which is that Shelton is a proponent of fixed exchange rates. Her belief in fixed rates is catnip to an administration that sees currency manipulation as a threat to winning its trade war.

Team Trump wants to compress the United States trade deficit and enhance the competitiveness of domestic manufactures by using tariffs to raise the price of imported goods. But a 10% tariff that is offset by a 10% depreciation of foreign currencies against the dollar leaves the relative prices of US imports unchanged.

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