Growing Threat of Currency ‘War’ Could Derail Global Economic Recovery
China has long been known as the globe’s biggest currency manipulator. China undervalues its currency—the yuan or the renminbi— and that raises the price of U.S. exports and suppresses the price of Chinese imports into the United States. This artificial price advantage is a major factor that encourages U.S. businesses to shut down operations here and manufacture in China instead, costing the U.S. millions of manufacturing jobs and is a major reason for the massive U.S. trade deficit.
But now, writes AFL-CIO Senior Economic Policy Advisor Thomas Palley in an Op-Ed in the The Globalist, other nations are pursuing policies with similar consequences and that threatens to launch a global “currency war.”
Palley writes that nations must act together to coordinate currency exchange rates to avoid a currency war that would undermine economic recovery and increase the likelihood of stagnation.
The undeniable problem is exchange rate devaluation benefits the devaluing country at the expense of others. From a global standpoint, it can easily become a case of robbing Peter to pay Paul.
You can read his full article here.
Earlier this year, a report from the Economic Policy Institute (EPI) found that 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.
Currently there is bipartisan legislation in the Senate and House that would crack down on currency exchange rate manipulation. AFL-CIO President Richard Trumka says if the legislation were approved it would send "an important message that this nation will no longer tolerate currency manipulation by other governments."
From Trumka:
This wrongful and unfair practice distorts the global economy and disadvantages countries like the United States that follow international trade rules. The growth of these illegal actions has cost far too many jobs over the past several years.
