I originally tested the currency hawks' big theory by looking at how Japan's appreciation of the Yen in the 1970s and 80s versus the Dollar resulted in larger, not smaller bilateral trade deficits with the United States. In that same blog post, I also noted how "the 20% RMB appreciation in 2006-2008 that resulted in an expanding US-China trade deficit." Indeed, it was these historical facts - not fancy economic projections or models - that first caused me to be skeptical of the myriad congressional claims about the effects of RMB appreciation on bilateral trade flows.
A few months later, I revisited this issue when I examined India's recent appreciation of the rupee against the dollar, and I once again found reason for skepticism:
As the rupee strengthened against the dollar, the US-India trade deficit, and Indian imports to the US, did not steadily decline, as the currency hawks unequivocally assert should happen. And US exports to India didn't steadily increase either. Hmm.Ok, so that's historical evidence from Japan, China and India all arguing against the currency hawks' claims about currency appreciation and the US trade deficit. And it appears that we can now add yet another country to my growing "skepticism list": Thailand. As Bloomberg reports:
Thus, the US-India currency and trade data strongly undermine the idea that anyone can accurately predict how changes in currency policies will affect bilateral trade flows in an increasingly globalized economy. There's just too much going on beyond currency for it to dictate trade. Indeed, as the correlations listed above show, there's actually a weak, positive correlation between a stronger rupee and both increased Indian imports and an increased bilateral trade deficit, and there's a weak negative correlation between a stronger rupee and increased US exports.
Thailand’s exports rose for the 10th consecutive month in August as the baht’s appreciation to a 13-year high failed to curb demand for the country’s automobile parts and electronics.Interestingly, the analysts and government officials quoted in the Bloomberg article are adamant that, despite almost a year of hard data arguing to the contrary, further baht appreciation will soon put a dent in Thailand's booming export sector. Maybe that'll indeed be the case, but it certainly hasn't happened so far. And as the article implies, exports to the US in particular have consistently increased as the baht has strengthened against the Dollar.
Shipments increased 23.9 percent last month from a year earlier to $16.5 billion, Commerce Minister Porntiva Nakasai said in Nonthaburi province on the outskirts of Bangkok today. The median estimate of 12 economists in a Bloomberg News survey was for a 23.5 percent gain....
The baht has gained 8.4 percent against the dollar this year, making it the second-best performer in Asia....
The commerce ministry still expects exports to grow 20 percent to $183 billion this year, even after the baht’s appreciation, Porntiva said.
Imports climbed 41.1 percent in August, the ninth consecutive month of gains, as the nation’s economic recovery raised demand for raw materials and consumer goods. Thailand had a trade surplus of $643 million last month, compared with a $940 million deficit reported in July....
Thailand’s exports to the U.S. grew 37 percent in August, up from a 24 percent gain a month earlier, and shipments to Europe rose 20 percent from 16 percent. Exports to China rose 22 percent compared with a 30 percent gain in the previous month, according to the ministry’s statement.
Meanwhile, the US-Thailand trade deficit has also increased since the start of 2009: based on my quick calculations from the US Census data available here, the US-Thailand trade deficit has increased by about $1 billion ($997.093 million to be exact) in January-July 2010 over the same period in 2009. That's an increase of about 15.7% (from about -6.35 billion to -7.35 billion) year-on-year. Yet, as Bloomberg states, the baht has gained 8.4 percent against the Dollar since the beginning of the year and now sits at a 13-year high. Other currency data (available here) also confirm that the baht has steadily appreciated versus the Dollar since the beginning of 2009.
Clearly, the baht's appreciation has not - I repeat, not - led to a magical reduction in the US-Thailand trade deficit, as the currency hawks' glorious economic models probably would have predicted. Instead, just like in '06-'08 China, '70s-'80s Japan and (to a lesser extent) '09-'10 India, Thailand's trade surplus with the United States (and thus the US deficit with Thailand) actually increased as the baht steadily climbed in value versus the USD. Pretty interesting, eh?
And please let me be clear here: just as I've said when pointing out other historical currency/trade relationships, I do not mean for a second to imply that the latest Thai data further prove that a nation's trade deficit with the United States will increase as its currency strengthens against the dollar. Instead, I think the Thai data, just like the Japanese, Chinese and Indian data before them, provide just a little more evidence that (a) there are many economic forces beyond - and probably far more important than - currency levels that determine global trade flows; and (b) the steadfast claims of currency hawks that RMB appreciation will magically "cure" the US-China trade deficit should be treated with extreme skepticism.
(And, in this most political of seasons, maybe even a little suspicion.)
Exit question: if the congressional currency hawks' number one reason for taking aggressive unilateral action against Chinese imports is this questionable, then what does that say about all of their other steadfast assertions re: their legislation's impact on US jobs or its WTO-consistency or, well, just about anything?