Larry Summers explains why Mnuchin's comments about a weaker dollar ignore a key part of America's economic strength

Thomson Reuters

• Treasury Secretary Steven Mnuchin touted the benefits of a weak dollar, causing a commotion in currency markets.
• The president himself was forced to echo the Treasury's long-standing strong-dollar mantra, but the US currency continued to fall.
• Lawrence Summers, former Treasury Secretary under President Bill Clinton, wrote in a Washington Post op-ed that Mnuchin's comments fell flat in both "style and substance."

Treasury Secretary Steve Mnuchin's remarks on the benefits of a weaker dollar in Davos, whether an off-the-cuff gaffe or part of a coordinated policy strategy, earned him an unusually blunt rebuttal from one of his predecessors in that role, Harvard economist Lawrence Summers.

In a Washigton Post op-ed, Summers argued that Mnuchin's comments, which sent the dollar reeling despite attempts to walk them back, were a failure on the global stage in both "style and substance."

"There are good economic reasons the last seven Treasury secretaries stayed with the strong dollar mantra," he wrote.

"Yes, a weaker dollar means cheaper U.S. exports. But it also means higher priced imports and so less purchasing power for American incomes. It is much better to strengthen our fundamentals than to make ourselves poorer by putting our goods on sale as we push our currency down."

Mnuchin told reporters in Davos that "obviously a weaker dollar is good for us as it relates to trade and opportunities." He did later add the currency's short-term value is "not a concern of ours at all." And his boss, President Donald Trump, all but walked back Mnuchin's remarks when, likely prompted by one staffer or another, he echoed the long-running "strong dollar" mantra repeated by the US Treasury.

Still, financial markets took it as a statement of administration policy, taking the dollar down sharply for three sessions running.

Mnuchin's tone ignores America's 21st century economy, which is based more on consumer spending and services than manufacturing and exports. It also conflicts with American interests in so far as they risk competitive devaluations elsewhere - witness European Central Bank head Mario Draghi's thinly-veiled rebuttal of Mnuchin immediately after his remarks.

Summers continued: "Previous Treasury secretaries had little to say about the dollar. What they have said has been carefully scripted and oriented to long-term soundness. They insisted on being their administration's sole spokesman on foreign exchange issue."

Through both Republican and Democratic administrations, Treasury secretaries have been extremely cautious about their currency comments, arguing that, in the long-run, a strong dollar would be a reflection of America's economic strength.

In contrast, Summers said, "Mnuchin spoke without a script, began with near-term commercial considerations, and was apparently contradicted by the Commerce secretary. None of this can be reassuring to those looking to judge the competence and credibility of the Trump administration."