Jack Lew Sees No Evil: Treasury Fails To Name China as a Currency Manipulator for the 12th Time

The U.S. Treasury announced today, for the 12th time, that the Obama Administration has determined that neither China, nor any other “major trading partner of the United States met the standard of manipulating the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade…”

This political document ignores the fact that China purchased $681 billion in total foreign exchange reserves between December 2012 and June 2014, and more than $2 trillion since this Administration took office. Currency manipulation by China and approximately 20 other countries has increased the U.S. trade deficit by $200 to $500 billion. Elimination of currency manipulation would create 2.3 million to 5.8 million U.S. jobs, without raising public spending at all (indeed, reducing the trade deficit through currency re-alignment would reduce the federal budget deficit).

Recent economic research has shown that purchases of Treasury bills and other foreign assets increases a country’s current account by between 60 and 100 cents for each dollar spent on foreign exchange reserve purchases. The Chinese Yuan (Renminbi) fell 1.3 percent against the U.S. dollar between December 2013 and October 10, 2014. Currency manipulation has flooded U.S. markets with cheap and unfairly priced products, and diminished US exports to China, as well as to third country markets where U.S. and Chinese goods compete. The U.S. goods trade deficit with China increased 4.1 percent through August 2014, compared to the same period last year, despite the growth slowdown in the U.S. economy. Japan, which also has a history of currency manipulation, has allowed its currency to fall 27 percent in the past two years. The U.S. goods trade deficit with Japan is the second largest amount our trading partners.

Ending currency manipulation is the single most effective policy option available for creating millions of U.S. jobs and closing the remaining U.S. jobs gap caused by the Great Recession. Congress can help, by passing pending legislation (HR 1276 and S114) that would allow the Commerce Department to treat currency manipulation as a subsidy in countervailing duty trade cases. In addition, the President and Federal agencies possess the tools needed to end currency manipulation with the stroke of a pen. The Treasury and Federal Reserve have the authority needed to offset purchase of foreign assets by foreign governments by engaging in countervailing currency intervention. By taking these steps, the U.S. government could make efforts by foreign governments to manipulate their currencies costly and/or ineffective.

But the place to start is by facing the facts. It is time for Secretary Lew to end the charade and declare that China is a currency manipulator. Ignoring this obvious fact was counterproductive long before the Obama administration took office. We have much to gain by recognizing the problem and confronting China directly, and the time for action is long past due.

 


  • hansenabcd

    It is also high time that we faced the fact that the US Government, like China, is a major currency manipulator. By selling Treasuries without limit to China and similar countries, it is encouraging the inflow of foreign capital that drives up the price of our dollar.
    Over the past 40 years, the share of US government debt owned by foreigners has risen from about five percent to about fifty percent — one of the reasons that we are now the world’s largest debtor .
    It is distressing that our own government, through its action and inaction, would drive production and jobs from our shores to foreign countries.
    The solution is as simple as Econ 101. The global demand for US assets clearly exceeds the supply. As we learned in basic economics, when this happens, the price goes up.
    The price of assets on Wall Street goes up, leading to bubbles and crashes. The price of the dollar goes up, making it hard for US workers and businesses to compete against imports or in global export markets.
    Instead of waiting for politicians to make the apparently impossible decision to officially label China as a “currency manipulator,” why not do what is done so widely elsewhere when demand exceeds supply — simply raise the price.

    America could easily impose a modest “market entry fee” on incoming foreign capital whenever the dollar is significantly overvalued as indicated by a trade deficit exceeding say one percent of GDP. This would reduce the demand for US assets, thereby reducing upward pressures on the US dollar. In turn, US workers and businesses would once again be internationally competitive.
    If a market entry fee didn’t fully do the trick — and it might not for countries like China that are investing in US assets, not for yield but for commercial advantage in international trade — the US government could simply restrict the sale of Treasuries and apply a special tax on holdings and yields of such instruments.
    We have it within our power to create a more competitive dollar under existing US and international law. With a more competitive dollar, Americans could once again earn as much producing exports as they spend on imports, unemployment rates would drop, and with increasing labor market pressures, wages would rise to more decent levels.
    John Hansen
    ** America Needs a Competitive Dollar — Now **