If the United States implemented trade policies to end currency manipulation—especially by China—not only would that reduce the U.S. trade deficit by $190 billion to $400 billion over three years, it would be a major first step in reviving the nation’s manufacturing sector and creating up to 4.7 million jobs, according to a new report from the Economic Policy Institute (EPI).
The report, Reducing U.S. Trade Deficits Will Generate a Manufacturing-Based Recovery for the United States and Ohio: Ending Currency Manipulation by China and Others Is the Place to Start, finds that:
Reviving U.S. manufacturing requires eliminating a jobs-destroying U.S. trade deficit in goods by ending currency manipulation and investing in a series of coordinated manufacturing policies.
Currency manipulation is the largest single cause of the U.S. trade deficit and the Chinese government is the world’s biggest currency manipulator. It deliberately keeps the value of its currency artificially low and that artificially raises the price of U.S. exports to China and suppresses the price of Chinese imports into the United States. This artificial price advantage is one of many pull factors that encourages U.S. businesses to shut down operations here and manufacture in China instead.
Manufacturing jobs have been the hardest hit as a result of the nation’s trade deficit, and the EPI report says that the reduction in the trade deficit engineered through new trade policies would over three years:
- Create between 2.2 million and 4.7 million U.S. jobs (equal to between 1.4% and 3% of total nonfarm employment).
- Reduce the national unemployment rate by between 1.0 and 2.1 percentage points.
- Create some 620,000 to 1.3 million manufacturing jobs (27.5% of all jobs created by eliminating currency manipulation).
- Increase U.S. GDP by between $225.0 billion and $473.7 billion (an increase of between 1.4% and 3.1%).3
- Shrink the federal budget deficit by between $78.8 billion and $165.8 billion (reductions that would continue as long as the trade balance remained stable), as growth in output expands tax receipts and reduces safety net payments.
But even then the United States would still face a sizeable trade deficit and that’s why, according to the report, “Fully eliminating the goods trade deficit requires implementing policies that will help restore demand for U.S. goods.” The report’s co-author Robert Scott says:
These reforms, coupled with massive investments in infrastructure, clean technologies and renewable energy, would reduce or eliminate the U.S. trade deficit, while supporting millions of additional good jobs, adding hundreds of billions of dollars to U.S. GDP, and reducing unemployment and federal budget deficits.
In 2011, the Senate passed legislation giving the U.S. Treasury Department more tools to enforce rules against currency manipulation, but House Republicans blocked a vote on the bill. According to the EPI report:
Although many legal and regulatory tools are available or have been proposed to reduce or eliminate currency manipulation, currency manipulation could be ended by the U.S. president with a mere stroke of a pen. The president could simply declare that the United States will no longer sell Treasury bills and other government assets to China and other countries that refuse to allow the United States to purchase their government assets (currency manipulators generally refuse to sell their government assets to the United States, effectively closing their capital markets)….Refusing to sell assets to currency manipulators would eliminate the principal tool used by foreign central banks to manipulate their currencies: purchases of Treasury bills and other government securities (U.S. government securities constitute approximately 70% of all such foreign exchange reserves).