Tyler Cowen addresses the question in “Gita Gopinath on Trade, Currency, and Economic Transformation” (A conversation with Tyler, September 25, 2026). Gopinath just returned to Harvard after a stint at the IMF, and as usual is full of interesting and wide-ranging comments. Here are some of the many comments that caught my attention:
Because world trade is usually conducted and billed in US dollars, not only in the US but everywhere, changes in the US dollar exchange rate have a muted effect on import and export levels.
The value-added component of trade has declined, and because of the dominant role of the dollar in the trading system, everyone sells their goods in dollars. In a way, the way you want to think about it is when China exports some certain goods to other countries, if the imports are also priced in dollars, then the inputs that go into the production function are priced in dollars and sticky in dollars, so you have an incentive to price in dollars, and your dollar price will not move because the cost of production is not that much. dollars.
That is why we see a reasonable price of the dollar in the world. The sense that somehow China should be able to, or other countries should be able to, cut dollar prices by a lot when the currency depreciates is not small, because they also import inputs from the rest of the world that are priced in dollars, and they don’t have much of a border to squeeze. Now, of course, there are variations between items. Some things depend more on dollar-valued inputs, some depend less, and you see in the data that the variation is significant.
Can Argentina continue its progress against inflation?
This is a lesson that we learn all the time with countries that are in this process of disinflation where you start with triple digit inflation. Two years ago, I think Argentina’s inflation was around 150%, so going down to 30 percent is very difficult. Bringing down is impressive, but always the last mile from here to anything like a single-digit number, always takes many, many more. This is not specifically about Argentina. Now, in the case of Argentina, what should be done to make it go down faster? First, I need to be more confident about policy continuity. I think what the Milei administration did well compared to the previous administration is to recognize that the problem is fiscal, that if Argentina runs the type of deficit it does and uses monetary financing, usually printing money to pay, there is no possibility to get out of this trap. He has run major surpluses since he came to power. He was very loyal. I remember having a conversation with him when I was at the IMF. This is absolutely not going to happen, but there is a question of whether another political class has stepped in.
What are the economic reasons to worry about trade imbalances?
[T]they are out of balance with themselves and there is nothing we should focus on. I think about welfare, and welfare includes jobs and consumption, whether inflation, purchasing power, etc. People don’t wake up in the morning and say, “Okay, the current account deficit is too big, or the current account surplus is too big.” If all your policies that give good results to your country end up in deficit or surplus, that’s fine. There are many good reasons for running deficits and surpluses as we know them. No one is telling you that you shouldn’t.
The problem arises when you have policies that the country has in place that are inconsistent with any kind of balanced growth model, and they manifest themselves in trade deficits and surpluses. This is what I have to say as an economist…. [I]In the case of the US and China, we are very far from a world where countries practice good policies… [trade] The surplus is a reflection of everything that is wrong with China. It is not a reflection of the strength in China. This is a reflection of weak consumption. This is a reflection of resources not being allocated to different sectors. They do it with the property market. Now they have a huge property market problem that they haven’t been able to fix in five years. They now have other markets, including EVs and other sectors. They have a problem with very low inflation. They tried to implement an anti-involution policy, gathered companies and said, “You have to keep the prices higher than you are doing now.” This is not a world that is playing good wisdom, and this is all comparative advantage, and this is the result that we read. I’m not going to push the argument that it’s, “Oh, we should prefer the cheaper stuff from China.”