Instant Up-Tick For World Economies, But Only If Politicians Step Aside And Don’t Invoke Trade Tariffs

The lagging US economy could be jump-started to grow instantaneously.  Some 2.3-5.8 million jobs that have been exported overseas would return to the US.  These weren’t jobs transported to Asia (largely China) by the shift of US manufacturing overseas but by a practice called currency manipulation.

You would think that the President would jump at such an opportunity.  An occasion arises to put a halt to currency manipulation that makes US-made goods higher priced in international trade. 

That opportunity is the Trans Pacific Partnership (TPP) trade agreement that the current administration in Washington is pushing to finalize.  But the trade agreement doesn’t include any language to address currency manipulation.   Political and financial experts are demanding this issue be addressed in the TPP trade agreement, though how to accomplish this is a heated debate.

When the US buys more imported goods than it exports that results in a trade imbalance.  As an article in the Los Angeles Times says:

“Currently the U.S. trade deficit is running at more than a $500 billion annual rate, roughly 3% of our GDP. This has the same impact on demand in the U.S. economy as if families or businesses just pulled $500 billion out of circulation and stuffed it under their mattresses.” 

That is equivalent to 6,666,666 jobs @ $75,000 annual salary.  Government ought to be interested since this would generate more than $100 billion in new US tax revenues. 

There are some proposed legislative and policy remedies to this problem but pray they don’t get approved.  Politicians are calling for a trade war that could escalate could throw China and Japan into chaos at home as millions of jobs would vanish and public unrest and even starvation are feared. 

Jonathan M. Finegold Catalan
 of the Mises Institute says: “world governments are looking to enact tariffs and quotas on each other in an effort to win an ‘upper hand’ in the global marketplace.”  He calls these proposals “outright frightening.”

Politicians and some astute economists are calling for offsetting tariffs on goods imported from countries that manipulate currencies, that is, who buy US dollars to create a false demand that drives up its value so US goods purchased internationally will be more costly than the manipulating country’s goods.

But all the discussions I have read so far on this topic fail to go beyond and dollars and cents of the equation to consider what happens to jobs in Asia.  Oh certainly currency manipulation has taken a terrible toll on US workers.  It is estimated that 2.3-5.8 million jobs have been lost in the US due to foreign buying of US dollars.  But there is no mention of how a shift of jobs back to the US would impact China, Japan, Malaysia. 

Yes, bring back US jobs.  But isn’t that going to put a lot of people in Asia out of work and when that happens, political unrest will follow that could lead to retaliation. 

But part of the weak economy worldwide is that Americans aren’t buying as much as they used to.  If jobs return to the US then Asia will benefit indirectly. 

Mr. Catalan’s insight is cogent.  He claims currency manipulation ends up with low-priced goods being shipped from Asian nations, a practice that harms Asian manufacturers.  Yes, Asian countries are getting orders but they are selling goods at cost or even below cost.   China doesn’t know how to gain business by adding value and gaining top price for its goods, it only knows how to beat competition on lowest price.  This keeps China rolling in US dollars that allows it to continually loan money back to the US in the form of US Treasury notes to feed US overspending.  However, the Chinese are kept in semi-poverty by this practice of price competition.

If you want to rapidly put a dent in the 20+% US unemployment rate (Shadowstats.com) as well as boost retail sales and stagnant incomes, start by ending currency manipulation.  If you want to fix sagging economies in Asia, bring jobs back to the US so money can begin to circulate back to Asia again. 

The argument that China has done most of the currency manipulation appears to be fallacious.  The value of Chinese money has risen in the period 2006-2013.  China is being made a scapegoat in the debate over trade sanctions against other Asian countries that manipulate their currencies.

A better policy, proposed by C. Fred Bergsten at the Peterson Institute for International Economics would have the U.S. buy foreign currencies in amounts equal to the amounts of dollars the foreigners buy to weaken those currencies.  No signatures on trade agreements would be necessary.

Mr. Bergsten’s proposal has been published at Forbes.com and a recent issue of Foreign Affairs.  

The U.S. need not even bring this issue before TPP negotiators writes Bergsten.  Agreement with foreign countries is not required to remedy the problem.  All the US need do is instruct the US Treasury Department to conduct “countervailing currency intervention” against manipulators.  If an Asian country buys one billion to prop a strong dollar and their currency weak, the US would simply buy one billion dollars of Chinese currency. 

Said Mr. Catalan in 2010:  “We are in a frightening state of affairs, where the government feels the need to commit acts of aggression, through the use of tariffs and quotas, as means of ‘economic defense.’ As even our current experience with China shows, trade wars have a tendency to escalate. It is even more unfortunate that a large proportion of a nation’s academia — supposedly of great erudition — agree with economic policies that will only lead to the destruction of wealth and to political disaster. It suffices to say that if the present rate of intervention continues to accelerate, the future looks dim indeed.”

Do politicians really want to fix this problem and the greater problem of a weak world economy?  If they do, they won’t have a better opportunity than now.