Tyler Cowen serves up the questions in “Gita Gopinath on Trade, Currencies, and Economic Transformation” (Conversations with Tyler, September 25, 2026). Gopinath has just returned to Harvard after a stint at the IMF, and as usual is full of interesting and wide-ranging commentary. Here are a few of the many remarks that caught my eye:
Because world trade is mostly conducted and invoiced in US dollar, not just in the US but everywhere, changes in US dollar exchange rates have a muted effect on levels of imports and exports.
The value-added component of trade has declined over time, and because of the dollar’s dominant role in the trading system, everybody is pricing their goods to each other in dollars. In a way, the way you want to think about it is that when China is exporting some certain goods to the rest of the world, if its imports are priced also in dollars, then those inputs that are going into its production function are priced in dollars and sticky in dollars, then you have an incentive to just price in dollars, and your dollar price is not going to move that much because the exchange rate adjustment is not doing much, because an important part of your cost of production is also in dollars.
That’s the reason why we see a fair amount of dollar pricing in the world. The sense that somehow China should be able to, or any other country should be able to, cut their dollar prices by a lot when their currency depreciates is not the case, because they are also importing inputs from the rest of the world that are priced in dollars, and they don’t have that much of a margin to squeeze. Now, of course, there’s variation across goods. Some goods rely more on inputs that are dollar-priced, some depend less, and you do see in the data that that variation matters.
Can Argentina continue the progress it has made against inflation?
That’s actually a lesson we learn every time with countries that are in this disinflation process where you’re starting off with inflations of three-digit numbers. Two years ago, I think Argentina’s inflation was around 150%, so coming down to 30 percent, that was tough. Bringing it down is impressive, but it’s always the last mile going from here to anything like a single-digit number, always takes much, much longer. This is nothing special about Argentina. Now, in the case of Argentina, what would it take to bring it down much faster? Firstly, I think there’s got to be a lot more confidence in policy continuity. I think what the Milei administration has done very well compared to the previous administrations is recognize that the problem was fiscal, that as long as Argentina was running the kinds of deficits that they were doing and using monetary financing, basically money printing to pay for it, there was no possibility of getting out of this trap. He has been running primary surpluses since he came to power. He’s absolutely completely committed to it. I remember I had conversations with him when I was at the IMF. This is something he absolutely will not budge from, but there are questions whether the rest of the political class has signed on to this.
What are the economic reasons for concern about trade imbalances?
[T]he trade imbalance in and of itself is not something that we should be focused on. I think what we care about is welfare, and welfare involves jobs and consumption, what’s inflation, purchasing power, and so on. People do not wake up in the morning saying, “Okay, my current account deficit is too big, or my current account surplus is too big.” If all of your policies that were delivering good outcomes for your country were to bring along a deficit or a surplus, that’s perfectly fine. There are lots of good reasons to be running deficits and surpluses we know. There’s nothing that tells you that you shouldn’t.
The problem arises when you have policies that countries have in place that are inconsistent with any kind of a balanced growth model, and they manifest themselves in that trade deficits and surpluses. This is what I’m saying as an economist … . [I]n both the case of the US and China, we’re very far from the world where countries are doing good policies … China’s [trade] surpluses are a reflection of things going wrong in China. It’s not a reflection of strength in China. It’s a reflection of weak consumption. It’s a reflection of misallocated resources going into different sectors. They did that with their property markets. Now they have a huge property market problem that they haven’t been able to fix in five years. They have this now with other markets, including EVs and the other sectors. They have the problem with inflation being too low. They’re trying to do so called anti-involution policies, bringing companies together and telling them, “You’ve got to keep prices higher than what you’re doing right now.” This is not the world where they’re playing good policies, and this is all comparative advantage, and this is the outcome that we see. I wouldn’t push the argument that this is, “Oh, we should be just happier with cheaper goods from China.”