Opinion | A Radical Plan to Fix the Dollar

But currency misalignment — driven by large flows of private foreign capital into the financial markets — is still lifting the dollar higher. And this misalignment is blunting the effect of President Trump’s China tariffs. Beijing has reduced the value of its currency by 9 percent in the last year, which has offset the president’s tariffs by lowering the cost of all of China’s exports.

The president gives lip service to complaints about the strong dollar. He says that China has given itself a “tremendous” competitive advantage by weakening its currency. But his administration, including Treasury Secretary Steven Mnuchin — a Goldman Sachs alum — and a team of Wall Street veterans, does nothing in response.

Several economists have estimated that the dollar must fall by roughly 27 percent in order to rebalance trade flows in three to five years. Such a revaluation is possible, however, and there are different means to accomplish this.

One option is federal intervention to buy foreign currency assets, which would address the misalignment driven by flows of overseas public and private capital. Or, the United States could impose a withholding tax on the profits and dividends earned by foreign investors, both public and private. The International Monetary Fund has already endorsed such “speed bumps” for developing countries seeking to restrict the inflow of foreign capital.

The executive branch could also negotiate directly with its trading partners to realign the dollar against competing currencies, a precedent set by previous Republican administrations. In 1971, President Richard Nixon imposed a 10 percent import surcharge that coerced allies into raising the value of their currencies. And in 1985, Congress passed tariff legislation that provided leverage for President Ronald Reagan to negotiate the Plaza Accord, yielding a 30 percent drop in the dollar’s value.

Whatever the approach — whether it’s Ms. Warren’s plan, or negotiation compelled by broader tariff threats — an overvalued dollar is now the primary drag on America’s global competitiveness. This currency problem has been ignored for too long, and it’s a growing problem for America’s workers and domestic industries. Wall Street’s self-interest should not be allowed to stand in the way of finally fixing it.

Robert E. Scott is a senior economist with the Economic Policy Institute Policy Center.

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