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President Donald TrumpYour browser does not support the element. likes fast food almost as much as he . During a government shutdown in his first term, he laid on a banquet of burgers and “many, many French fries” for a visiting American-football team. During the 2016 campaign, according to one aide, he would often order two fish burgers and two Big Macs (although he removed the buns).He is also passionate about trade policy. “Tariff”, he has said, is the most beautiful word in the dictionary. It appeared five times in a recent memo describing his “America First” approach to trade. The memo ordered his treasury secretary to identify international currency misalignments that prolong trade gaps or give America’s trading partners an unfair edge.Is there a way to unite the president’s passions? Yes, we’re afraid there is. Since 1986 has been using Big Mac prices around the world as a quick guide to exchange-rate misalignments.Our index draws on the principle of “purchasing-power parity”: a currency’s value should reflect how much stuff it can buy. If it takes $10 to buy something in America and 40 yuan to buy exactly the same thing in China, then America’s currency has four times the purchasing power of China’s. The exchange rate between the two should thus be 4 yuan to the dollar.One snag in applying this theory is finding exactly the same things to purchase in both countries. McDonald’s solves that problem by serving a highly standardised Big Mac all over the world. “You know what you’re getting,” as Mr Trump once pointed out.The suggests that many currencies around the world are undervalued against the dollar. It takes $5.79 to buy a Big Mac in its country of origin. You only need $3.52, converted into yuan, to purchase the same burger in China. If Mr Trump were to host a sports team in Beijing rather than Washington, his burger banquet would be almost 40% cheaper. In Mexico, it would be more than 20% cheaper and in Canada 6%. The exception is the euro area. Its currency is now almost 3% overvalued against the dollar.Many countries, as Mr Trump’s memo points out, have big trade surpluses with America (see chart). These surpluses often reflect a country’s place in the global supply chain rather than any unfair competitive edge. A country that assembles electronics, for example, might have a large surplus with America but a big deficit with the countries from which it imports expensive components. Nonetheless, glaring surpluses could attract Mr Trump’s ire and arouse his love of tariffs.Are currencies prolonging the problem? Most of these surplus countries have become more competitive, rather than less, over the past year, according to our index. This is mostly because their currencies have weakened against the dollar in the foreign-exchange market. In several cases it is also because Big Mac prices have risen less than they have in America. In South Korea, for example, prices have remained unchanged, even as they have increased by ten cents in America.But if Mr Trump responds by imposing tariffs, he could make America even less competitive, by raising prices and limiting demand for foreign currency. Mr Trump has a passion for both tariffs and fast food. One love could make the other dearer.
