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President Obama is still pressing the difficult campaign to obtain Trade Promotion Authority and use it to conclude international negotiations -- across one ocean for the Trans Pacific Partnership (TPP), and then across the other ocean for the Transatlantic Trade and Investment Partnership (TTIP). Many in the Congress, particularly many Democrats, insist that the trade agreements must include mechanisms designed to prevent countries from manipulating their currencies for unfair advantage.The President is right.

Discussions in Beijing between US President Barack Obama and Chinese President Xi Jinping – the leaders of the world’s two largest carbon-emitting countries – produced an unexpected, groundbreaking bilateral agreement on greenhouse-gas emissions. Under the new deal, the US is to reduce its emissions by 26-28% from 2005 levels within 20 years, and China’s emissions are to peak by 2030. In the absence of a binding global agreement, such unilateral or bilateral commitments by countries to rein in their contribution to global warming represent the most realistic hope for addressing climate change.

In few policy areas does good economics seem to conflict so dramatically with good politics as in the practice of subsidies to food and energy.  Economics textbooks explain that these subsidies are lose-lose policies. In the political world that can sound like an ivory tower abstraction.   But the issue of unaffordable subsidies happens to be front and center politically now, in a number of places around the world.   Three major new leaders in particular are facing this challenge:  Sisi in Egypt, Jokowi in Indonesia, and Modi in India.

I visited Korea earlier this summer and gave a talk on effects of U.S. Tapering on Emerging Markets.  (This was also the subject of comments at an Istanbul conference sponsored by the NBER and the Central Bank of Turkey in June.)An interview on the effects of policy at the Fed and other advanced-country central banks on East Asian EMs now appears in KRX magazine (in Korean), August. Here is the English version:Special Interview with  Jeffrey A. Frankel <KRX MAGAZINE> AugustQ: On 10 June 2014, Federal Reserve Bank of Boston President Eric Rosengren said in a speech that the Fed’s “new” monetary policy tools, including forward guidance and large-scale asset purchases, were “essential” in ensuring the economic recovery in the United States.

A long-awaited reform of the International Monetary Fund has now been carelessly blocked by the US Congress.   This decision is just the latest in a series of self-inflicted blows since the turn of the century that have needlessly undermined the claim of the United States to global leadership.The IMF reform would have been an important step in updating the allocations of quotas among member countries.  From the negative congressional reaction, one might infer that the US was being asked either to contribute more money or to give up some voting power.

Most people know that the general trend in the dollar’s role as an international currency has been slowly downward since 1976.   International use of the dollar as a currency in which to hold foreign exchange reserves, to denominate financial transactions, to invoice trade, and to serve as a vehicle for foreign exchange transactions is below where it was during the heyday of the Bretton Woods era (1945-1971).But few are aware of what the most recent numbers show.It is not hard to think of explanations for the downward trend.

On July 27 negotiators reached a compromise settlement in the world’s largest anti-dumping dispute, regarding Chinese exports of solar panels to the European Union.   China agreed to constrain its exports to a minimum price and a maximum quantity.   The solution is restrictive relative to the six-year trend of rapidly Chinese market share (which had reached 80% in Europe), and plummeting prices.  But it is less severe than what had been the imminent alternative:  EU tariffs on Chinese solar panels had been set to rise sharply on August 6, to 47.

The value of the yen has fallen sharply since November, owing to the monetary component of Japan’s efforts to jump-start its economy (”Abenomics”).  Thus the issue of currency wars is expected to feature on the agenda at the G-8’s upcoming summit in Enniskillen, UK, June 17-18.The phrase “currency wars” is catchy.  But does it have genuine analytical content?   It is another way of saying “competitive devaluation.”  To use the language of IMF Article IV(1) iii, it is what happens when countries are “manipulating exchange rates…to gain an unfair competitive advantage over other members…” To use the language of the 1930s, this manipulation would be a kind of beggar-thy-neighbor policy, with each country seeking to shift net exports toward its own goods at the expense of its neighbors.

My preceding blog-post discussed the process whereby the undervalued renminbi and large Chinese trade surplus have begun to adjust in earnest, over the last three years.The adjustment in the Chinese trade balance is reminiscent of Japan with a 30-year lag, like other aspects of the US-China relationshkp (though not all).  Japan’s balance of trade in goods and services went into deficit in 2011, for the first time since 1980.  Special factors have played a role in the last year, including high oil prices and the effects of the tsunami in March 2011.

The world is waiting to see whether China has successfully achieved a soft landing, slowing down the economy from its overheated state of a year ago to a more sustainable rate of growth. Some China-watchers fear it could hit the ground in a crash landing as have other Asian dragons before it. But others, particularly American politicians in this presidential election year, talk only about one thing: the trade balance.Here the important message is that long-term forces of adjustment are at work in the Chinese economy.