The Right Road to Ending the Trade War

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun

The summer squall over a suggestion that the Federal Reserve join the resistance against President Trump is certainly music to our ears. That’s because the specter of a self-financed agency of the American government running a campaign to defy the voters will help put the debate over monetary reform into sharp relief. And none too soon, in the view of The New York Sun.

This contretemps was touched off by a former president of the New York Fed, William Dudley. Writing for Bloomberg, Mr. Dudley suggests the central bank should “refuse to play along” with “President Donald Trump’s trade war” with Communist China. “There’s even an argument,” he writes, “that the election itself falls within the Fed’s purview.” He wants the Fed to explicitly oppose Mr. Trump in 2020.

The Wall Street Journal is all over it this morning with an editorial nailing the contrast with the usual calls for the Fed to stay out of politics for to guard its independence. “Perhaps Mr. Dudley is angling to become the next Fed Chair if Mr. Trump is defeated,” the Journal writes. It goes on to suggest that “his partisan, reckless op-ed should disqualify him from any consideration.”

What is so horrifying about Mr. Dudley’s demarche, at least in our view, is not that he is suggesting the politicization of monetary policy. Our view is that monetary policy is inherently political, a view that has been articulated by Mr. Trump’s prospective Fed nominee, Judy Shelton. No, what’s so horrifying about Mr. Dudley’s idea is that it is so contrary to the Constitution.

That parchment doesn’t grant any monetary powers to the Fed. The central bank didn’t exist when the Constitution was framed. When it was framed, it granted all of America’s monetary powers — to tax, spend, borrow on the credit of the United States, coin money, regulate its value and that of foreign coin, and fix the standard of weights and measures — to the Congress.

Congress, we’ve often noted in these columns, is the most political branch of the government. It most often must stand for reelection. It is the easiest to petition. So it’s not the politicization of policy that bothers us. No, it’s the defiance of the political branches that is so constitutionally crosswise. For Mr. Trump and the Congress are acting in direct pursuit of a political mandate.

Indeed, it’s hard to think of a presidential campaign in which any candidate marked a plan to confront a country on trade and monetary manipulation as clearly as Mr. Trump configured his views on Communist China. Plus, too, the powers he’s exercising have been granted our presidents by legislation no court has seen fit to block. That the Fed could conspire to defy Congress is horrifying.

We understand full well that there are a lot of Americans hurting from the trade war. Farmers, manufacturers, importers, exporters, retirees, huge numbers of Americans are paying for this war. In that sense, at least, a trade war is like a military war. Imagine, though, Mr. Dudley fetching up during a hot war with a piece on the Bloomberg suggesting the Fed join the lists against its own government.

Our own view — we’ve been writing ourselves blue in the face on it — is that if it’s an honest, fair, and proven monetary system we want, the right way to do it is to narrow the discretion of the Federal Reserve by defining the dollar as constitutional specie, whether gold or silver. It is the right road to ending the trade war. And reducing the danger of a central bank defying the government. And a real legacy for Mr. Trump.

The New York Sun

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