It is these currency misalignments that keep trade imbalances in place. Currency misalignments are caused largely by private speculators investing in U.S. securities. These investments lead to undervalued foreign currencies and an overvalued dollar. An overvalued dollar makes it impossible for many American products to compete domestically versus imports, or internationally via exports.
Exports are a favorite trade topic on Capitol Hill. But if U.S. companies are competing against goods made and sold in currencies that are artificially cheap relative to the dollar, they will lose market share and lose money. With China entering the high value tech and aerospace industries, an overvalued currency makes it hard for the U.S. to compete globally on everything from telecommunications systems to, in the near future, airplanes and rocket launch pads. As a result of these misalignments, the U.S. has accumulated trillions of dollars of national and foreign debts that must be paid either by shrinking government services, including social security and healthcare benefits, or by raising taxes.
“Some claim that America’s massive trade deficits — which have equaled up to 75% of total global trade deficits in some years — are driven by foreign governments manipulating the value of their currencies,” said John Hansen, a former World Bank Senior Economist and now an international trade advisor. “I think that used to be true in the past, particularly of China, but that is not the case today.”
Today almost all of the so-called “currency manipulation” is done by private speculators, not by foreign central banks buying dollar reserves, Hansen said.
According to the Treasury International Capital System data (TIC) and the Bureau of Economic Analysis, of total inflows from abroad, only about 3% has been used for traditional foreign direct investment, such as buying a company, or breaking ground for a new factory. Most of the gross inflow of money from abroad came from institutional investors such as European life insurance companies buying stocks, or exporting companies buying Treasury bonds.
How does all of this cause such serious currency misalignment? It’s very simple.
Well over $90 trillion worth of foreign currencies each year seek to purchase cash and securities in U.S. markets, according to TIC. This money is equal to over three times total annual U.S. GDP.
“We have the largest goods deficit ever and the largest net debt to foreigners of any country in the world,” according to Hansen, who calls this our external deficit doom loop. “Our twin deficits —the trade deficit, and the fiscal deficit, hurts every sector of our economy,” he says.
The MAC is just another version of “peak load pricing,” something we live with in multiple forms every day when resources are scarce and demand needs to be moderated. For example, the higher tolls on express lanes during peak rush hours, the higher charges for electricity during peak evening hours, and the higher daily charges at Disney World for weekend and holiday visits are all forms of peak load pricing.
The overvalued dollar also makes it harder to convince local manufacturers to make the goods Washington deems imperative to national security. The Trump administration has sought to correct these trade imbalances via tariffs. But another way to tackle this issue is through capital inflow taxes that reduce the cost of made-in-America vs. foreign-made goods.
Hansen said that “a small tariff of say 1-3% should eliminate U.S. trade deficits in three to five years, balance our foreign trade, generate enough tax revenues, paid entirely by foreigners, to drastically lower our annual fiscal deficit of nearly $2 trillion.
“A truly competitive dollar created by the MAC would increase the competitiveness of all goods made in America, and the net impact of the MAC on profitability for all investors, domestic and foreign, would be strongly positive,” Hansen believes.
Unlike tariffs, which are different depending on country or product, a tariff on capital flows would be a single low single digit rate charged on all capital inflows. Thus it would be easier to administer and harder to evade than tariffs on goods.
The Tariff Trump Hasn’t Tried Yet: A Market Access Charge on Foreign Capital Could Tame the Dollar and Boost U.S. Manufacturing
There is one tariff the Trump administration has never mentioned. And that is a tariff on foreign capital inflows buying U.S. stocks and bonds. Could it be a tool to stabilize the dollar, balance trade, and raise revenue to curtail an ever-rising fiscal deficit? Yes, it can.
In a June 24 op-ed in the Financial Times of all places, columnist Martin Wolf toyed with the idea. “If the U.S. wants to accelerate a worldwide discussion with a policy intervention, the obvious one would be a tax on capital inflows,” Wolf writes.
The fact that Wolf mentions this at all in a reasonable way speaks volumes. We can say he is warming people up to the possibility. That alone is groundbreaking.
Wall Street Will Howl
A Market Access Charge (MAC) might be the perfect addition to the tariff agenda; a surgical tool to tax capital inflows. Wall Street howled over 25% tariffs on China — and now they’re relatively silent with 55% tariffs on China and 10% worldwide. They’ve accepted tariffs as part of daily life, though critical of the uncertainty and fast pace of changes.
The MAC meets the International Monetary Fund’s criteria for “capital flow management tools” (CFMs) presented in its Review of the Institutional View on the Liberalization and Management of Capital Flows. CFMs are not old-style capital controls that prevent capital from leaving the country. Instead, they are used for moderating inflows that can create imbalances caused by currency appreciation.
The charge applies only to money brought into the U.S. from abroad. American citizens and companies are exempt. That makes the MAC a pro-worker, pro-growth, America First policy immune from the “it’s a tax on Americans” narrative.
The post-globalist Trump administration would be just the administration to deliver on such a thing, all in the name of fixing trade imbalances.
Non-economists should easily understand the need to moderate excessive foreign capital inflows from abroad. These massive inflows maintain the dollar far above a trade-balancing level, problematic for industrialization and the American worker in several different ways.
This includes things like:
When domestic goods cannot compete profitably, factories close, farmers may be unable to buy seed and fertilizer for next year’s crops, and workers throughout the supply chain lose their jobs. Falling sales and profits reduce government revenues, and the government increases spending to support businesses that are finding it hard to compete against imports (see spending controversies over the Inflation Reduction Act and the CHIPS Act). More government aid is needed for unemployment insurance and Medicaid, increasing state and federal debt burdens which may eventually fall on the taxpayer via tax hikes and other measures by the state that seeks higher local, state taxes and fees and penalties placed upon local residents to fund the government.
These problems are not theoretical. The U.S. lost its AAA credit rating from all three rating agencies, with Moody’s lowering the U.S. government’s credit rating from Aaa (the highest rating) to Aa1 in May.
In 2018, after President Trump first imposed his Section 301 tariffs on Chinese imports, China promptly devalued its currency by 10% from March 2018 through the end of 2019, neutering the impact of tariffs.
– from “How to Make Tariffs Work for National Security, Enforcement and Revenue” by CPA Senior Economist Mihir Torsekar, June 24, 2025
Is There Such a Thing as ‘Too Strong’?
In the complicated world of foreign exchange rates, currencies that are “too strong” (overvalued against other currencies), cause significant trade deficits, year after year.
“Strength” is the wrong concept to use when discussing exchange rates, because everyone instantly wants something to be strong, not weak. The more appropriate criterion is “appropriate.” In the case of exchange rates, a currency’s value is “appropriate” when, on average, the country’s external trade deficits stay within about 2% of balance. Beyond that, the risks of slow growth, rising unemployment, inflation, unmanageable budget deficits, and financial instability inevitably rise.
Currency Misalignments
It is these currency misalignments that keep trade imbalances in place. Currency misalignments are caused largely by private speculators investing in U.S. securities. These investments lead to undervalued foreign currencies and an overvalued dollar. An overvalued dollar makes it impossible for many American products to compete domestically versus imports, or internationally via exports.
Exports are a favorite trade topic on Capitol Hill. But if U.S. companies are competing against goods made and sold in currencies that are artificially cheap relative to the dollar, they will lose market share and lose money. With China entering the high value tech and aerospace industries, an overvalued currency makes it hard for the U.S. to compete globally on everything from telecommunications systems to, in the near future, airplanes and rocket launch pads. As a result of these misalignments, the U.S. has accumulated trillions of dollars of national and foreign debts that must be paid either by shrinking government services, including social security and healthcare benefits, or by raising taxes.
“Some claim that America’s massive trade deficits — which have equaled up to 75% of total global trade deficits in some years — are driven by foreign governments manipulating the value of their currencies,” said John Hansen, a former World Bank Senior Economist and now an international trade advisor. “I think that used to be true in the past, particularly of China, but that is not the case today.”
Today almost all of the so-called “currency manipulation” is done by private speculators, not by foreign central banks buying dollar reserves, Hansen said.
According to the Treasury International Capital System data (TIC) and the Bureau of Economic Analysis, of total inflows from abroad, only about 3% has been used for traditional foreign direct investment, such as buying a company, or breaking ground for a new factory. Most of the gross inflow of money from abroad came from institutional investors such as European life insurance companies buying stocks, or exporting companies buying Treasury bonds.
How does all of this cause such serious currency misalignment? It’s very simple.
Well over $90 trillion worth of foreign currencies each year seek to purchase cash and securities in U.S. markets, according to TIC. This money is equal to over three times total annual U.S. GDP.
“We have the largest goods deficit ever and the largest net debt to foreigners of any country in the world,” according to Hansen, who calls this our external deficit doom loop. “Our twin deficits —the trade deficit, and the fiscal deficit, hurts every sector of our economy,” he says.
The MAC is just another version of “peak load pricing,” something we live with in multiple forms every day when resources are scarce and demand needs to be moderated. For example, the higher tolls on express lanes during peak rush hours, the higher charges for electricity during peak evening hours, and the higher daily charges at Disney World for weekend and holiday visits are all forms of peak load pricing.
The overvalued dollar also makes it harder to convince local manufacturers to make the goods Washington deems imperative to national security. The Trump administration has sought to correct these trade imbalances via tariffs. But another way to tackle this issue is through capital inflow taxes that reduce the cost of made-in-America vs. foreign-made goods.
Hansen said that “a small tariff of say 1-3% should eliminate U.S. trade deficits in three to five years, balance our foreign trade, generate enough tax revenues, paid entirely by foreigners, to drastically lower our annual fiscal deficit of nearly $2 trillion.
“A truly competitive dollar created by the MAC would increase the competitiveness of all goods made in America, and the net impact of the MAC on profitability for all investors, domestic and foreign, would be strongly positive,” Hansen believes.
Unlike tariffs, which are different depending on country or product, a tariff on capital flows would be a single low single digit rate charged on all capital inflows. Thus it would be easier to administer and harder to evade than tariffs on goods.
World ‘Not Ready’ For New Plaza Accord
No country seems to want a new currency agreement. A “Plaza Accord” or perhaps a revamped version known as the “Mar-a-Lago Accord” is only water cooler chatter for now. It’s different from the MAC, and the suggestion for a Mar-a-Lago Accord has not been well received.
Furthermore, no country wants a new currency agreement that sets fixed rates like those set by the inflexible Plaza Accord. In fact, “an agreement like the Plaza Accord would be impossible to reach in today’s highly polarized environment,” said Hansen.
“America is not the hegemon it was after WWII, nor is there an overwhelming Red Scare like the one that drove countries to cooperate with America at the time.”
Zongyuan Zoe Liu, an economist with the Council on Foreign Relations, said in a blog post dated April 9, 2025 that the Plaza’s success was limited: “It devalued the dollar but failed to correct the U.S.–Japan trade imbalance.”
By 1988, countries abandoned coordinated currency management and the U.S.-Japan trade deficit grew, hitting a record $89 billion by 2006, based on Census data. It’s been ranging between $60 billion and $74 billion since, as Japanese electronics lose out to Chinese imports.
Between 2017 and 2020, Trump’s tariff policy centered on China. Only steel and aluminum tariffs were global, but were quickly erased, for the most part, and replaced by quotas. (Steel and aluminum tariffs are now back.) Over that period, the goods trade deficit with China decreased from a record $418 billion in 2018 to $295.5 billion by 2024, based on Census data.
However, the total annual trade deficit increased, with the goods deficit now breaking a trillion dollars each year for the past three years. It will surely do so again this year, barring a collapse in imports over the next seven months.
Although the Biden administration kept a major share of the Trump trade policies in place, the current account deficit – which measures trade and income imbalances — continued to explode, reaching $1.13 trillion in 2024 or nearly 4% of GDP.
Restoring the Link Between Exchange Rates and Balanced Trade
Many think tanks, including CPA, have been talking about the need for policies to restore the link between exchange rates and balanced trade. A common theme is emerging now: an overvalued dollar has undermined U.S. manufacturing, and an overvalued dollar weakens the effect of tariffs in reducing trade imbalances.
In February 2025, Joseph Gagnon, an economist at the Peterson Institute for International Economics (hardly an anti-globalist, populist-leaning think tank — as they are anti-tariff), wrote that when tariffs curtail imports, “they also reduce the supply of dollars” earned by foreigners. “A reduced dollar supply…drives a higher dollar price, which makes U.S. exports more expensive for foreigners.”
Basically, Gagnon is saying that if the dollar strengthens, the positive impact of tariffs on trade balances can be destroyed. Something must be done given this reality.
Implementing the Market Access Charge (MAC) would:
Senators Tammy Baldwin (D-WI) and Josh Hawley (R-MO) embraced Wolf’s capital flows tax in the 2019 Competitive Dollar for Jobs and Prosperity Act, which explicitly directed the Fed to levy a variable MAC.
Trump and his administration are aware that the overvalued dollar is a headwind to their reshoring agenda. If he wants to re-industrialize America, he might have to de-financialize a little. He needs to help our financial sector move from “casino capitalism” to “democratic capitalism” of the kind suggested by Wolf in his 2023 book by that title.
“At CPA, we favor a sophisticated system to move the dollar down to a fair level through a Market Access Charge,” Jeff Ferry, CPA’s Chief Economist Emeritus, wrote in a report in May 2024. “Direct intervention by the Treasury could drive the dollar down, but that would be a one-time change. The Market Access Charge would be a durable, continuous policy to move and hold the dollar to a competitive level, and support the real economy of production and jobs instead of the financial economy of short-term capital flows.”
If Trump is serious about re-industrializing America, he must be serious about rebalancing the dollar, as well.
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
TRENDING
Why Do Western Governments Keep Folding to China? Nexperia Serves Up Another Example.
Trump’s Question to Meat Packers — Where’s the Beef? — Opens Market Manipulation Investigation
CPA Calls for Replacing USMCA with Two Bilateral Agreements to Restore U.S. Trade Sovereignty
CPA Releases New Economics Report: “Section 232 Steel Tariffs Are Necessary For National Security”
Beef Prices: Blame the Packers, Not America’s Ranchers
The latest CPA news and updates, delivered every Friday.
WATCH: WORTH FIGHTING FOR
Get the latest in CPA news, industry analysis, opinion, and updates from Team CPA.
CHECK OUT THE NEWSROOM ➔