Growing trade deficits with China eliminated or displaced 2.4 million U.S. jobs between 2001 and 2008. China's manipulation of its currency, the Renminbi (RMB), is responsible for at least 1 million of these displaced jobs. The best estimates show that the RMB (or yuan) is undervalued by at least 40%, which makes U.S. goods 40% more expensive for Chinese purchasers and makes Chinese goods artificially cheap in the United States (and to a lesser extent around the world). China said over the weekend that it will follow a more flexible exchange rate, but as we learned yesterday, this does not ensure that the RMB will increase in value. While the RMB rose slightly on Monday, China's big, state-owned banks intervened to pull it back down to the level of last week's peg in overnight trading.
History shows that China will not allow its currency to rise significantly unless it is faced with the threat of real trade sanctions. In 2005, 67 members of the Senate approved legislation that would have imposed trade sanctions if China failed to revalue its currency. While the Senate measure never became law, that summer China did allow its currency to float, and it rose 20% over the next three years.
The world economy cannot afford to wait another three years for China to revalue, nor can we depend on China's central bank to act responsibly. Congress must set a firm target and deadline for China to achieve a 40% revaluation of its currency.
China's Central Bank announced that it will allow its currency to fluctuate 0.5% per day. Congress should give China until November 15 to raise the value of its currency by 40%, from the prior peg at 6.82 yuan per dollar to 4.85 (yuan per dollar). This will require the RMB to increase by 0.35% per day in this period.
Senator Charles Schumer told the U.S. China Commission last week that he and other colleagues would push for a vote on China currency legislation (S.3134) "within the next two weeks." Congress should also impose a currency manipulation adjustment tariff that would raise the effective exchange rate to 4.85 yuan per dollar on any goods imported from China that arrive in the United States on or after November 15, 2010. No tariffs would be due if the RMB appreciates by 40% or more by that date. We also need to get tough with other currency manipulators such as Hong Kong, Malaysia, Singapore and Taiwan, but it will be much easier to work with those countries after China revalues.
China would surely respond to the threat or imposition of such a tariff by rapidly revaluing its currency. This would be in the best interest of the United States, the European Union, and most other countries around the world. It would also be good for China. It would encourage China to liberalize labor unions, increase wages, and take other steps to raise domestic demand for goods made in that country. It would also help manufacturers from the United States and other countries to compete on a level playing field, for the first time in more than a decade, and set the stage for sustainable world growth. It is time for China to shoulder responsibility for its own growth in the G-20 and the world economy.
This piece was originally posted to epi.org on June 23, 2010.
I don't believe that we need to be pushing for 40% I believe that a 2% to 5% tariff on all goods entering the US would make it once again cost effective for business to produce SOME goods in the US. Business will only change their ways when it becomes cheaper for them to do so.
You can also blame the megabanks and hedge funds in this debacle. They have created with the people's money the derivatives that limit the swing in currencies and the price of commodities. Because of this, we are not really driven by supply and demand anymore. Remember the oil bubble a few years ago that caused oil to girate in price.
And so like the diamond cartel, the world economy is controlled by a key group of policy makers. Welcome to the New World Order. They will make sure that they will be richer than ever before if they survive the global economic collapse, while the rest of us are just fodder for their cannons.
When it comes to the trade deficit. I'll take a page from Mr. Bourdreaux. Would Mr. Scott be willing to apply the same logic to his own household? Working in his area of specialty, which is primarily non-productive, the Scott household has been forced to purchase goods from other households with the money he earns through his service job. Shouldn't Mr. Scott start imposing extra costs on family members who purchase products made by others to encourage them to start producing for themselves and in turn make the Scott family more wealthy?
U.S. jobs depend on spending more of the stimulus money on Main Street rather than on Wall Street (did yo know that less than 1% of that $14 Trillion was spent on Main Street?). U.S. Jobs depend on expanding the growth for profitable American goods and services in the fastest growing import market in the world - and you certainly won't get there through threats, rude spitting in the Chinese faces, or protectionism, which could only beget tit for tat protectionism.
If America is serious about expanding exports, BEFRIEND erstwhile foes such as Iran, Cuba, etc., stop warring, and remove all limitations against the export of dual use goods and technology. If they want to buy military goods, sell it to them - as long as they have to buy American supplied parts for goods that are a couple generations behind, how effective can such a military be against America? If Prez. Obama's goal of doubling American exports in the next 5 years is to take hold, in this climate of falling (like a rock) Euros, the export restrictions must go.
Tell you what is more likely a scenerio, Scottie: upon the threatened passage of these self destructive laws, China would announce a cooperative demonstration of the effect of a 40% increase in price - a 40% export tariff would be imposed on all goods going to America for 3 months, to take effective immediately. In fact that legislation would honor Mr. Schumer and be called the "Schumer Bill". At the end of the 3 months, the voters can decide how they like it.
What's the point? The point is you have to put it in perspective. Under the current crop of Beltway leaders, Schumer and Graham included, they voted to fork over $14 Trillion (that is Trillion with a T, being $2T in cash, and $12T in government guarantees) of money that Americans do not have, to the Banksters that caused the 8 million job loss debacle - for what purpose? So that the banksters can pay themselves record bonuses 2 years in a row - just the top few Wall Street Banks paid their execs. over $20 Billion. That is probably more than what the Chinese made in ALL of their $295 Billion in exports to America. Of course the banksters threw these glib talking pols scraps - in the last 6 months the "financial industry" (or is ti "fraud industry"?) spent more than $500 million (growing closer to $1 Billion now) on lobbying (don't you love the way bribes were legalized?) the same pols who handed over the loot.
Fair enough. Put that in context. According to the administration, the financial debacle caused America 8 million jobs in the last year alone. So let's put credit where credit is due, jail ALL Banksters, confiscate their assets, and put a few trillion back into the Federal coffers to spend on AMERICAN infrastructure projects.
How's that for a start? Much more effective and immediate results, rather than pushing on that string on the Chinese Yuan exchange rate. The jobs that were lost to the lower wage nations (China included) are not coming back anyway. Any real economist will tell you that.