Rebuild Our Economy By Reducing Our Trade Deficit

Jobs, jobs, jobs! That is what every member of Congress said they were going to create if we elected them.  President Obama said he would create one million new manufacturing jobs.  The President has not met his goal yet, but there are a few things we can do to reduce unemployment, create new good manufacturing jobs, and reduce our trade deficit all at the same time.

Many people say that the problem with the American economy is that ‘America doesn’t make anything anymore.’  Millions of good, mostly union, manufacturing jobs have been shipped overseas.  This has created many problems within our economy.  First, it raised the unemployment rate as workers saw their factories up and disappear.  Second, it created a trade deficit with other countries as we are importing more goods than we are exporting.

The trade deficit is key to rebuilding our economy and getting millions of Americans back to work.  The trade deficit is a little confusing but let me try to explain it in a non-econ major’s interpretation.

Every year the United States exports $212 Billion dollars worth of machinery. This would be cars, trucks, engines, etc.  At the same time the United States imports $314 billion dollars in machinery from other countries.  For the purpose of this example let’s say that all of this trade is with China.  This would create a $102 billion dollar ‘trade deficit’ with China.

The US currently has a $540 Billion dollar annual trade deficit. This means that U.S. exports of $2.194 trillion were less than its imports of $2.73 trillion in goods and services.”  Other countries like Germany are exactly the opposite, they export more than they import. In fact Germany had a 1.5 EUR billion in trade surplus.  This is one of the reasons Germany has one of the strongest economies in the world.

The first step in getting Americans back to work is to balance our trade with other countries. Dean Baker from the Center for Economic Policy Research (CEPR) told me in a phone interview that eliminating the trade deficit would lead to “4 million new jobs directly, and over 6 million new jobs indirectly.”  Not only would we be creating new jobs, many of the new jobs would be good, Middle Class union jobs in the manufacturing sector.

Baker also talked about how by adding these new jobs, the United States would come closed to “full employment”.  Baker stated, “As we climb closer to full employment wages will rise.”  As the unemployment rate drops, employers will have to raise their wages to keep employees or encourage new applicants.

Clyde Prestowitz, President of the Economic Strategy Institute, echoed Baker’s statement by say that “lowering the trade deficit would create 5-6 million new jobs.”

Both Baker and Prestowitz cited ‘currency manipulation’ as a key influencer in our trade deficit.  Again, for those (like me) who are not economic majors, currency manipulation is very complex theory where one country buys another country’s debt to cause changes in the currency rate of exchange.

Robert E. Scott Economic Policy Institute explained currency manipulation the best in his blog:


Matthew McMullan from the Alliance for American Manufacturing explained currency manipulation to me in an email:

“China holds massive amounts of American currency in reserve. They go right to the U.S. Treasury and buy treasury notes. By gobbling up dollars and sitting on them, they make them more scarce. It makes the dollar stronger (or more expensive) and makes its own currency, the yuan, weaker (or cheaper) by comparison. That makes stuff that America exports more expensive, and stuff that China exports cheaper. China effectively subsidizes its exports by putting a tax on America’s.”

Doug Hall also from the EPI breaks it down to its most basic form: currency manipulation “raises the cost of U.S. exports, and lowers the cost of U.S. imports.”

The Economic Policy Institute recently published Robert E. Scott’s massive report on currency manipulation, which spells out exactly how ending currency manipulation will create new jobs and boost America’s exports.

After the report was released AFL-CIO President Richard Trumka said, “U.S. workers can compete with anyone in the world, but they cannot compete successfully on a lopsided playing field.  Currency manipulation allows countries like China to devalue their currency, which artificially makes Chinese goods less expensive and American products more expensive. This is a major contributing factor in our lopsided trade relationship with China. Meanwhile, U.S. manufacturing companies and workers bear the brunt of these unfair policies.”

How do we compete in the global marketplace when countries are gaming the system through currency manipulation?

Robert E. Scott (EPI) recommends several ways of combatting currency manipulation.

First, Congress should pass pending legislation that would allow the Commerce Department to treat currency manipulation as a subsidy in countervailing duty trade cases. Second, the proposed Trans-Pacific Partnership trade agreement should include “strong, enforceable currency manipulation provisions,” as a majority of the House has insisted. Third, the administration should implement strategies to offset purchases of foreign assets by currency manipulating governments, which would make efforts to manipulate the dollar and other currencies costly and/or ineffective.

Both Dean Baker and Clyde Prestowitz also said they were “not fans” of the TPP, and the TPP is not addressing the currency manipulation issue.

Prestowitz went on to say that the TPP will “result in higher unemployment and lower wages for US workers.” He continued by saying that the “there is no such thing as ‘Free-Trade’; the TPP is about regulating trade.”

There is another issue that the TPP is not currently addressing, and that is incentives to move manufacturing plants overseas.  This is similar to states offering huge tax breaks for corporations who choose to move their manufacturing plants into their state.  This is what drew Boeing to South Carolina; and the same thing lures US manufacturers into moving to China and Japan.

These multi-national corporations are reaping huge profits from these so-called ‘free trade agreements’ and benefiting from currency manipulation.  We need to end the currency manipulators and get our trade deficit down to help American workers.

Prestowitz posed this question; “What would our economy look like if China had purchased $1.5 Trillion dollars worth of American products?”

Originally posted at NH Labor News.


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