You want to see some jobs? Take on China's currency manipulation. So says a new study by Economist Robert E. Scott, Economic Policy Institute.
The president should take immediate, executive action that will directly support the creation of up to 2.25 million export jobs by eliminating unfair currency manipulation by China and other countries.
Even better, the Obama administration doesn't need Congress to act. One stroke of the pen and the United States could dramatically reduce the trade deficit with China, creating millions of jobs in a matter of 18 to 24 months. 2.25 million jobs is larger than the most optimistic 1.9 million jobs being claimed $450 billion bucks will buy.
This should have been done, first thing, when the President took office. 11 million jobs later, still no action. Senator Sherrod Brown gives a Senate floor speech on the manufacturing job losses due to China's currency manipulation. The United States is on target to hit a new trade deficit record with China.
According to Scott, taking action on other nation's manipulating their currency would also help reduce the budget deficit.
A full revaluation (28.5%) of the yuan and other undervalued Asian currencies would improve the U.S. current account balance by up to $190.5 billion, increasing U.S. gross domestic product by as much as $285.7 billion, adding up to 2.25 million U.S. jobs, and reducing the federal budget deficit by up to $857 billion over 10 years.
There is also a much weaker bill in Congress that politicians love to endorse yet never seems to pass. It's being brought up again, unfortunately with more bad trade deals which will lose jobs and create a permanent, unreachable corporate tax haven.
Sen. Charles Schumer (D-NY) believes the U.S. Senate will pass a bill this session to address China's undervalued currency. Schumer says he has the requisite 60+ votes for cloture in the Senate (which is required to cut off debate, avoid a filibuster, and move to a final vote).
The bill offered in the Senate will be a combination of a bill (S.328) previously introduced by Sens. Sherrod Brown (D-OH) and Olympia Snowe (R-ME) and legislation yet to be introduced by Sens. Schumer, Lindsey Graham (R-SC), and 15 or so others. The timing of a vote and the vehicle on which it will be considered have not yet been announced.
To date, Tim Geithner has refused to even mention China as a currency manipulator, and no mention of the obvious from the U.S. trade representative either.
China, is claiming they won't let the Yuan appreciate even if Congress manages to pass something:
"China will not blindly, because of pressure from a bill in another country's congress, let its currency rise," Xinhua said, in response to recent comments made by Senate Democratic Leader Harry Reid on the Chinese currency.
Yet Economist Scott notes even the threat of America taking even the most modest action, does seem to correlate to a slight appreciation in the Yuan:
The mere threat of a large, across-the-board tariff on imports from China may be sufficient to persuade China that the time has come for a major revaluation that would benefit both countries. In 2005, Senators Charles Schumer and Lindsey Graham introduced legislation (S. 295) that would have imposed a 27.5 percent tariff on all imports from China if it failed to revalue within 180 days. This legislation was approved by the Senate (by a veto-proof margin of 67-33) but not by the House. Even so, shortly after its passage, China allowed its currency to rise for the first time in more than a decade. The currency ultimately appreciated by 20 percent, until the onset of the great recession in late 2007, when it was again tied to the dollar. China will respond to the threat of severe external pressure – especially since their policy of intervention has clear downsides for them as well.
Confronting China's currency manipulation is a no-brainer. It's so obviously a huge drag on the U.S. economy and American jobs, we have everyone from Republican presidential candidate Romney to Socialist Democrat Senator Bernie Sanders demanding the United States take action. In other words, the data, statistics are so overwhelming, you'd have to either be brain dead or corrupt to not know China's currency manipulation is killing American jobs and U.S. manufacturing.
Like Romney’s economic plan, the Currency Reform for Fair Trade Act would help crack down on countries like China by labeling them a currency manipulator and allowing the US government to assess duties on the country’s imports.
The legislation is sponsored by Senator Sherrod Brown, an Ohio Democrat, and is co-sponsored by several other liberals, including Chuck Schumer, Democrat of New York, and Bernie Sanders, Independent of Vermont. Of the 12 co-sponsors two are Republicans, Olympia Snowe and Susan Collins, who are both of Maine and are moderates often courted by Democrats.
Similar legislation was passed overwhelmingly last year by the House but it was not taken up by the Senate and died at the end of the year.
So why then, doesn't this administration take immediate action against China for currency manipulation? Anyone notice it won't cost the United States a dime, unlike Obama's $450 billion Stimulus bill?
Comments
"across-the-board tariff"
AAA rating for this article by Robert Oak and underlying work of economist Robert E. Scott (EPI)!
One great point is implied only, namely this --
If the Obama administration can't do what needs to be done, the Romney administration can!
But what I really like about Scott's observations is the phrase "across-the-board tariff"! Quoting from Scott --
And I don't think that I am alone in liking to hear this kind of talk. I believe that a solid majority of the American people agree!
Not that I am opposed to elimination of trade barriers! As an admirer of the original Henry Simons "Chicago School" of libertarian economics (economics for individual liberty), I am theoretically for elimination of trade barriers. However, I do not go along with the idea that when the facts show your theory to be inadequate, you are allowed to change the facts to fit your theory!
The charade carried on since the Uruguay Round (1994) can no longer be taken seriously as the Gospel according to Adam Smith.
The main idea of the Uruguay Round was that tariffs, beginning with agriculture, would be reduced to 15%. Then there would be an effort to eliminate trade barriers other than tariffs.
Instead, what we have seen is that tariffs have been eliminated, at least for the USA (except temporarily from time to time, pending enforcement action by the WTO). However, other trade barriers have blossomed into a kind of evolved military science in pursuit of survivalist neo-mercantilist agendas by every country except the USA.
It is now clear that elimination of trade barriers other than tariffs is --
(a) impossible for a trading unit such as the USA or China without effectively retaining some kind of substitute for a tariff vis-a-vis global trade;
(b) elimination of tariffs is only possible within a socially cohesive transnational union such as the EU; and,
(c) any such transnational union is politically problematic and globally unachievable, at least for the foreseeable future.
In short, the best way forward with elimination of barriers other than tariffs ... is ... an across-the-board tariff!
More support for tariffs
More support for wider discussion of tariffs as part of any path to economic recovery is at EP-linked Economy In Crisis. See, article by Craig Harrington, 'Why the U.S. Must reinstate Tariffs' (18 September 2011).
you're misunderstanding Scott
He's not saying across the board tariff. He is saying use a general tariff, by nation, to take up the difference between exchange rates, i.e. it's a leveler to negate the effect China's (and others) currency manipulation has on imports, trade.
That is absolutely not the same as an across the board tariffs on all imports.
No misunderstanding, just quoting Scott
I did not misunderstand Scott, I just quoted him. Of course, Scott has a point of view, somewhat different from my point of view.
What I was saying, and do say, is that it's refreshing to see the term "across-the-board tariff" used in discussion.
I probably agree with Scott as to policy. My general analysis is theoretical rather than policy-oriented.
My analysis (not necessarily the opinion of Scott, EPI or EP) is that an across-the-board tariff is essential if we want to work toward elimination of barriers other than across-the-board or other tariffs -- unless we are talking about transnational unions such as the EU.
As I have noted, I am theoretically opposed to all trade barriers, that is, opposed to trade barriers in the best conceivable of all conceivable worlds. But realistically -- here in what is merely the best of all possible worlds -- complete elimination of national trade barriers is simply impossible for the foreseeable future. Therefore, progress toward the ideal of free trade through irreversible and systematic tariff reduction is delusional.
Of course, we are stuck in the neo-mercantilist struggle for survival. We can't just declare a halt and new rules overnight. Nonetheless, the neo-mercantilist (WTO) system as it has evolved has been proven to subvert the declared intentions of the free-trade ideal.
it's not what he is saying
he is saying an across the board tariff for only countries who significantly undervalue their currency for an unfair trade advantage. That's not a tariff in the traditional sense. It ends up being across all imports from one country, but only because trade exchange, price exchange's are in that country's currency.
Yes, I am not saying what he is saying
Yes, I am not saying what Scott is saying. I just don't understand how I was misunderstood as trying to represent what I was saying as something that Scott has said or as something that is supported by Scott.
I thought that my point was clear, that it's good to see the term "tariff" and even "across-the-board tariff" in print and discussed. That point holds even though I have long since capitulated to the analysis, published here at EP, concerning energy.
Personally, I would install a dish just to be able to view a panel discussion of tariffs on some major network -- moderated by Robert Oak, with panelists Robert Scott, Craig Harrington, Ralph Nader and Peter DeFazio!
The terms "tariff" and even "across-the-board tariff" have popular appeal, like it or not. If that appeal is mainly to simplistic thinking, then there's all the more reason for discussing the idea in all its complexity, pro and con.
I remarked on Scott's use of a term, that's all. Doesn't mean that I am trying to make a citation, like, "blah-blah-blah (see, Scott, R., 2011)." Doesn't mean that I am representing that any of my ideas have been established by his use of the term!
I did not represent my analysis and conclusions as Scott's. I have no idea what Scott would say about my comments. He will probably never read them.
Am I posting fiction when I post historical/theoretical analysis of the free trade movement and related phenomena?
Nothing in my historical/theoretical analysis has been disputed. None of my conclusions have even been challenged. (Possibly, no one has read them!)
I am saying that the goals of free trade have not been and will not be, in the long run, served by systematic elimination (to zero) of tariffs in the short run. However, that doesn't mean that USA trade policy now should suddenly be limited to an across-the-board tariff -- that would indeed be simplistic. On the other hand, I would not recommend that USA trade negotiation should premise itself on any limitation, including a limitation as to an across-the-board tariff. (I presume that was Scott's point, that we should retain that 'nuclear option'.)
It's a non sequitur to suppose that my conclusion -- that across-the-board tariffs are the way forward for elimination of non-tariff barriers -- implies that I am arguing for an across-the-board tariff at this time (or ever). My conclusion is more of a conditional than a prescriptive statement: IF you want to reduce non-tariff barriers, THEN you need across-the-board tariffs. But we do not really want to reduce non-tariff barriers or tariffs either -- we want to improve the US economy. It's the free trade movement (WTO) that purports to want to systematically reduce non-tariff barriers by way of eliminating tariffs. IMO, that can't be done, and that's all I am saying.
IMO, the world will ultimately (maybe in 50 years) see modest across-the-board tariffs between major trading units globally, even as we may also see more transnational unions such as the EU.
somebody said American
somebody said American jobless is because of China, but i wonder after imposing the tariff to China imported good to United State, would these multinational company start to find others alternative cheap labor manufacturing based in Asia country like India, Vietnam, which still cant help American to create the job eventually. Any one have idea?Even though there are no China today, but there are still a lot of others Asian cheap labor countries, should USA imposed duty tax to all cheap labor countries in the earth? and make the multinational companies no way to build factories except United State?
From my statement above, It seem like this jobless issue is because of the decision of multinational companies to decide where to build their factory based on the cost issue. The dominant paradigm on this page" China currency manipulation cause American jobless" cannot hold it stand.
i hope someone can beat my mind on this issue with stating why you are not agree with me based on what i was saying above.
other currency manipulations, other nations besides China
It's true to some degree. While the focus is on China, the bill itself allows for any country who is manipulating their currency to get eventually slapped with tariffs for doing so.
Other countries, take Vietnam as an example, have other issues. Vietnam has problems with inflation and varying costs.
Manufacturing, esp. advanced manufacturing has a lot more costs than just labor. Building the plant, cheap raw materials needed for the manufacturing process also come into play. So while Vietnam's labor is cheap, these other variables and the variance are why Vietnam isn't destination #1 to offshore outsource manufacturing.
China, on the other hand, has the China PNTR trade treaty, which is a huge part of the problem additionally. That's why they have dominated our trade deficit.
I think the U.S. could impose a "cheap labor" tax. We mention India all the time on this site. Something like 7% of their GDP is all because they took our jobs. That's their BPO industry. offshore outsourcing.
That's the point, the original trade theory had the means of production statistic, in other words not mobile.
Now we have a "race to the bottom" where MNCs hunt the globe for the cheapest costs, including labor. That's not what an economy is supposed to be about in Democracies, i.e. how close industrialists can get to cheap, free labor for more profits.
I think there's a typo
A typo that may be confusing to some readers, and that's the only reason I mention it.
"That's the point, the original trade theory had the means of production statistic, in other words not mobile."
I am not sure, but I think probably that should read "means of production static"
Cost or after-tax profit?
"It seem like this jobless issue is because of the decision of multinational companies to decide where to build their factory based on the cost issue." -- Anon. Drive-by
A lot of what goes on has to do with what we might call externalities. That is, a country decides to move somewhere, set up offices somewhere, make all kinds of decisions -- all based on tax law, labor law, politico-social stability (or instability) and other factors that are "external" to a pure economic model. So, IMO, MNCs do not so much pursue the lowest "cost" as they do the highest "profit" -- and pure economic models that equate lowest cost to highest profit are problematic in application.
There's also (or should be) consideration of accepting a lower profit for the sake of factors that lower investment risk, and there's also the matter of how far out are the projections. If you plan for profits in a three year framework, and you believe the world is so unstable that to plan any farther out is insane ... your decisions will be very different than if you plan out to 5, 10 or 20 years. We have already seen, for example, manufacturing moving first to Mexico and then out of Mexico in short order. There's inefficiency there that should be examined.
I can spend a lot of time and money in pursuit of the absolute cheapest product that is to be found, but it might be much more efficient and satisfying for me in the long run to establish good relations with a supplier who can get me something good-enough and cheap-enough without my having to thrash around like a mad man. At some point you need to settle in to an ecology and a reality that is local. You can go too far in that direction, but you can also go too far in the opposite direction.
Across the board tarrif
Putting an across the board tarrif on China would be a economic disaster. Who do you think is financing a good portion of America's deficit? Yes, China is manipulating their currency and it costs US jobs, but put this tarrif on and China will have no reason to buy any more treasuries, and would certainly retaliate by selling what treasuries they have. This would result in sharp increase in interest rates as the government deparately tries to find buyers for its debt. But rising rates would cause interest payments on the $14 trillon debt to skyrocket causing obsene deficits.
To keep this from happening, the Fed would buy up all the bonds that China normally buys and print money to do so. This will cause massive inflation and just kill the average American's budget.
People think China needs the USA to buy its stuff, but the reality is that the USA needs China to finance its debt or it is game over USA.
China, Treasuries, Debt
China will still buy U.S. Treasuries mainly because if they stopped, not only would their own investments tank on their current holdings, but their inflation would shoot up like a rocket, way above any tariff calculated in.
As far as across the board tariffs, I've said many times on this site, that is absolutely a bad idea.
Why it's a bad idea is one needs certain imports for the U.S. economy to run and that's the way it is.
Obviously, it's one thing to put a tax on tire imports, when those tires are being dumped at below cost and killing off U.S. tire manufacturers because they simply cannot produce a tire at that price...
it's a whole other ball game to put a tariff on oil, energy imports. You want to see industrial production grind to a halt, the entire U.S. economy implode? Put a tax on oil, energy imports.
You're guaranteed to sink the U.S. economy.
So, Okeydokey, please stop posting that fiction. We're trying to be accurate here and that is one very bad idea.
Simpletons love it because it's a black/white answer, but it's absolutely an economic disaster to promote an across the board tariff.
The currency manipulation tariff on the other hand, is a whole other ball game. China manufactures so much that used to be made in the United States and such a tariff will cause U.S. manufacturers to return their offshore outsourced production here.
There are 1 million people making iphones in China. Think people won't buy iphones if there were $50 more per unit? Think again. Apple has such hype up and wonderful products, people would easily pay $250 more per unit and the demand would be just as high.
Now on terrible clothing that is poorly made, made of what and does not fit in the first place?
Also, this tariff is graduated. China and other currency pegs need to float.
Not the same at all as a general tariff.
Again, this site, myself do not recommend an across the board tariff for reasons we've stated many, many times.
The fiction
"Okeydokey, please stop posting that fiction." - Robert Oak
Brief review of facts in evidence against across-the-board tariff is appreciated -- but not impugning my remarks as fiction or as advocating across-the-board tariff for current USA policy.
Please note use of quotation marks in comment title - "across-the-board tariff" - was intentional. My initial topic was use of the term, not any policy recommendation.
After that, my topic was theoretical and historical, implying limits as to what is possible - related to policies instituted and supported by 'free traders', not policies advocated by myself or anyone else for the USA at this time.
The fiction is by 'free traders' that the world would move toward elimination of non-tariff barriers by first eliminating tariffs. Didn't happen. Ain't happening. Fiction.
What's the problem?
"Putting an across the board tarrif on China ... would result in sharp increase in interest rates as the government deparately tries to find buyers for its debt. But rising rates would cause interest payments on the $14 trillon debt to skyrocket causing obsene deficits." -- Bill Sander
The premise here is that we will not see monetary and related reforms as advocated by the American Monetary Institute. So, of course, we can expect disaster in one form or another ... but we already knew that!
However, assuming necessary reforms will be implemented, then the main point is that since we will not need to continue to snowball our debt, the "skyrocketing interest rates" will be purely the result of the value of Treasuries falling, that is, people who buy them will pay less, which means they will earn more relative to the amount they have paid. The interest payments made by the USA on existing Treasuries will total exactly what they would have anyway. The solution to the problem is easy -- it's like cutting up all your run-up credit cards to begin paying yourself first. You just have to get over your idea that the economy requires a huge US. debt in order to function.
As China unloads its ownership of our national debt and exchange value of U.S. Treasuries fall, just buy in on the way back up and you'll have a nice guaranteed nest egg. The People's Bank of China loses. You win.
What's the problem?
Free trade results, not theory
"Emphasis Should Be Placed On Free Trade Results, Not Failed Theory" is the title of an article by Karl Rusnak, at EP-linked Economy In Crisis.
That doesn't mean that an across-the-board tariff is the way to go, or even would not be disastrous in the short term, but it does mean that it's past time to identify WTO 'free trade' dogma as cow pucky.
enough on tariffs
I think my main point is trade is dynamic, dependent upon many elements and due to global supply chains, various elements via imports actually can help exports. There just isn't a "hatchet". Even the theory, if one digs into the mathematics, it's actually quite complex, multi-variate theory and Gomory utilized his integer mathematics in part for his analysis to come to equilibrium.
So, to scream "tariffs", which are just a tax and can be applied per item, even per point in time, just doesn't really address what's going on.
It's also a lightening rod. Alot of economists and esp. politicians don't take people too seriously who just shout "tariff" without details.
So, it's not a simple thing, except om currency manipulation that actually helps boil things down into a "simple thing" because it's just a gap, created across all of that nation's exports, who are manipulating their currencies.
For example, VATs are pretty common and China is notorious to literally change their VAT on a per time period and per item all of the time. That's all legal to do, according to the infamous WTO, i.e. change one's VAT in short time windows and per category or items.