The US should spend less and increase savings rather than use tariffs and foreign exchange rates to solve its trade imbalances with other countries, the head of the central bank said yesterday.
“Tariffs and foreign exchange rates are no panacea for trade imbalances,” central bank Governor Yang Chin-long (楊金龍) told an economic forum on the US’ trade disputes with other countries.
The US’ current account deficit reflects the world’s largest economy’s lack of domestic savings, and the solution lies in less consumption and more savings, Yang said, citing global economists
The global division of labor also contributes to Washington’s discontent, as it has economic benefits for all countries that take part in international trade, but also causes trade imbalances and income inequality, Yang said.
By imposing punitive tariffs on goods from a particular country, the US simply seeks to shift its trade deficit to its trade rivals, especially China, while failing to address the deficit’s causes, the governor said.
A concerted effort by advanced and developing economies is required to address trade imbalances through policy tools, Yang said.
Countries with trade surpluses should seek to increase domestic demand and cut dependence on exports, while nations with trade deficits should raise domestic savings and lower spending and investment, he said.
The US has to maintain a large current account deficit to fulfill its role as a global liquidity supplier, as the world shows stronger demand for reserve assets, chief among them the US dollar, Yang said.
He said that he supports a multipolar international monetary regime under which the euro and Chinese yuan would assume more importance to ease the burden on the greenback as the core reserve currency.
However, a multipolar system is unlikely to materialize in the near future, as Europe has yet to fully emerge from its debt crisis and Beijing has maintained tight capital controls, he said.
Advanced and developing economies should join hands in reducing trade imbalances, as all have a stake in globalization, Yang said.
Taiwan would take a hit if trade tensions weaken demand for technology products, as the nation is deeply embedded in the global technology supply chain, he said.
“The trade conflict poses both a challenge and opportunity for Taiwan, depending on how it deals with it,” Yang said.
The government is taking measures to foster capital repatriation, which could help create jobs and drive private investment, he said.
The central bank would do its part and keep the local currency relatively stable, despite market volatility, he added.
The New Taiwan dollar lost 2.96 percent against US dollar last year, showing more resilience than the TAIEX, which lost 8.6 percent over the year.
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