“They have treated us very unfairly on trade.” That’s one of President Trump’s most frequent economic themes, and he has a point. So do “they.”
To see why, it’s easy to forget that no one buys or sells with money. All trade is products for products, with money serving as the agreement about value that facilitates the exchange of those products.
Which speaks to the problem of unstable currencies. When President Richard Nixon and his Treasury department ignored the pleas of Fed Chairman Arthur Burns to not sever the dollar’s link to gold, they set in motion wild fluctuations in currency values that ushered in a modern era defined by much more frequent country trade disputes.
While up to 1971 the dollar was defined as 1/35th of a gold ounce, and global currencies were pegged to the dollar, subsequent to Nixon’s decision global currencies including the dollar bounced all around as a function of their lack of definition. The late Wall Street Journal deputy editorial page editor George Melloan described what followed as an “absence of policy.”
It’s pretty easy to see why global trade disputes and frequency of same emerged from the modern currency state of affairs when it’s remembered that underlying all monetary exchange is the movement of products in exchange for products. That works well when monetary concepts like the dollar, pound and yen are fixed in relation to one another, but not so well when the value of all three is a moving target.
When money lacks definition, product for product exchanges are no longer that. Exactly because currencies are a moving target, “winners” and “losers” are introduced to a trade discussion otherwise free of them.
It perhaps helps explain what President Trump means about the seeming unfairness of trade, albeit in different words. Dollars, pounds, yen, and now the euro are the primary mediums utilized by producers to exchange goods and services, but uncertainty about the value of each means that voluntary exchange isn’t as advantageous as it once was.
No doubt some will reply that currency markets exist to mitigate the challenge of floating money, but it’s the existence of those markets that so prominently reveals the need for a return to currency policy rooted in fixed exchange rates. At present, currencies are exchanged to the daily tune of $7 trillion; the latter a prominent market signal of how very much the world’s producers yearn for the currency stability of old.
It’s something for policy types to contemplate, along with hopefully President Trump and Treasury secretary Scott Bessent. Trade by its very name is mutually enhancing, only for uncertainty about currencies to introduce a downside to what was historically so enriching, and by extension, peaceful.
Money is a natural and essential effect of production, the purpose of which has been hijacked since 1971 by PhDs long on theory, but short on common sense. Sadly, the genius of trade has been sullied in the hijacking on the way to much more in the way of trade disputes that are realistically a comment about monetary uncertainty.
In pursuing currency-price stability, Trump and Bessent would resuscitate stable money as an essential economic input, and by extension imbue trade with its rightful economic primacy.
