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With all the protectionist talk coming from U.S. President Donald Trump's administration, it is surprising that no one has mentioned, much less sought to invoke, an obvious tool for addressing persistent external imbalances: the 1944 Bretton Woods Agreement's "scarce-currency clause".In his original plan for an International Clearing Bank, the British economist John Maynard Keynes proposed an escalating range of sanctions against member states that maintained continuous credit balances (and less onerous sanctions on countries with persistent debt balances). The idea was to pressure countries to reduce their current-account surpluses. The United States, which was by far the world's largest creditor, understandably refused to go along with Keynes' proposal. The scarce-currency clause has remained a dead letter ever since. This would largely affect China, Japan, Germany and Mexico, which contributed $347 billion, $69 billion, $65 billion and $64 billion, respectively, to the U.S.' $737 billion trade deficit in 2016 .To be sure, after the 2008 global financial crisis, the European Union did establish a Macroeconomic Imbalance Procedure to fine eurozone countries with surpluses exceeding 6 percent of GDP or deficits exceeding 4 percent of GDP.The fund would have its own scarce-currency clause, allowing for member states to discriminate against imports from creditor countries.
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