Thu, 10/09/2014 - 2:25pm
Jon Minnick, Associate Editor, Manufacturing Business Technology
According to author Mike Collins, America’s trade deficit is the single biggest obstacle to creating manufacturing jobs, and to keeping manufacturing jobs in this country. He also agrees with Warren Buffett who says, “The U.S. trade deficit is a bigger threat to the domestic economy than either the federal budget deficit or consumer debt and could lead to political turmoil.”
Collins recently wrote about America’s trade deficitincluding what it is, plus who wins and loses because of it. I suggest you check it out, but in it, Collins explains that:
“Normally trade deficits are self-correcting because, as the deficit grows, the country’s currency begins to decline in price in the world market. This makes exported goods less expensive and foreign goods more expensive, and trade is supposed to balance itself.
“In the case of America, this balance is not happening because many of our trading partners have figured out how to manipulate their currencies to keep the dollar value high so that they can continue to increase our imports.”
So not only is the trade deficit possibly hurting manufacturing at home, but currency manipulation by foreign countries that the U.S. trades with could be making it worse. On Oct. 15, the U.S. Department of Treasury will release its semi-annual Report to Congress on International Economic and Exchange Rate Policies. The department’s April report acknowledged China’s continued actions to impede market determination, but didn’t name China as a currency manipulator.
The Alliance for American Manufacturing (AAM) asserts that currency manipulation is hurting domestic manufacturing. In a letter this week, the organization put pressure on the U.S. Treasury Secretary, Jack Lew, to do what he can to reverse the problem.
In the letter sent to Secretary Lew, AAM President Scott Paul said:
“We appreciate that Treasury has noted some of these factors in past reports and, from time to time, engages the governments of China and Japan in dialogue on currency manipulation. We fully expect you to engage your international colleagues this week during the annual International Monetary Fund meetings. Those words, however, mean little to the millions of U.S. manufacturing workers who expect a level playing field but have grown disenchanted with America’s inadequate response.”
You can read the full letter here.
According to AAM, the situation has only grown worse in the last six months and notes that:
o The dollar/yuan exchange rate is the same this week as it was 17 months ago, falling 1.63 percent below its high-water mark in January 2014.
o Through August 2014, the U.S. goods trade deficit with China was $10 billion higher than in the same time period the previous year.
o China is not alone in its market distortions. Government officials in Japan have publicly acknowledged efforts to weaken the yen, which has lost 30 percent of its value against the dollar over the past 18 months.
AAM feels that the direct result of these actions is lost U.S. economic activity and jobs.
Stumo • 3 days ago
China, Japan and 20 other countries directly intervene in foreign exchange markets. That's the primary (but not the exclusive) way they do it. They accumulate reserves of other currencies. The only reason to do FOREX intervention is to gain a trade advantage. Whatever you think of QE, the US government does not participate in FOREX markets like this. Imagine the outcry if the Fed did that just like other countries' central banks! The "US manipulates too" crowd is incorrect. Further, to the extent that domestic actions like "printing money" impact the US dollar value downward, it is moving the dollar towards equilibrium, not away. The dollar is overvalued and should move lower towards equilibrium. The Chinese devalue to move the RMB lower - or away from equilibrium. IMF rules are designed to promote equilibrium. Countries that move currencies away from equilibrium are acting wrongly. Countries that move currencies towards equilibrium are acting rightly.
Mosman • 3 days ago
The comments by both RayL80 and timaiday are completely inaccurate and ignorant of the world we live in. Currency wars are real and with us and we are not the currency cheaters, try China, Japan, Germany, with the gorilla being China. Collins is spot on.
RayL80 • 3 days ago
The USA is not the victim here, the dollar is over valued by design. To maintain the dollars role as the world's most used currency, the US must export dollars. Over the long term, the only way to export dollars is to import goods. The dollar's role as preferred reserve currency allows US banks and those with close connections to them to buy up the world's assets on the cheap, giving the US unique influence across the globe by controlling key assets, particularly oil and gas and their distribution facilities. The full weight of the US State Department and military will fall on those countries not willing to play ball ie... Russia/Ukraine, Syria's unwillingness to transit oil for the Arab gulf states. From the eyes of those who control commerce in this country, manufacturing is NOT where the money is, money is where the money is.
timaiday • 4 days ago
US manipulate currency too. Every country manipulates currency for its own gain.
I'm sorry! Nobody cares about our pocket. They only care for their pockets. Why do the Chinese care? We can have restrictions but If they can't make money of American, they don't care.