Millions of jobs left on the table

It was great to see President Obama challenge congressional Republicans to do something real about jobs. His jobs bill, submitted to Congress Monday, would support 2.3 million new jobs and provide continuing support for another 1.6 million jobs. But his plan requires congressional approval, which is about as likely as a World Series appearance for Washington’s sub-.500 Nationals this year.

With unemployment at 9.1 percent, our economy desperately needs at least 11 million new jobs now just to get the unemployment rate down to pre-recession levels. We cannot allow the political stalemate in Washington to stand in the way of a full set of bold job creation initiatives. 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.

The administration wants to stimulate exports, and that’s a good idea, but if and only if it improves the trade balance. Growing exports support domestic employment but growing imports displace domestic jobs; meaning that we need policy changes to boost net exports. The president included an oft-repeated promise in his speech last week that he will soon send legislation to Congress to implement Bush-negotiated free trade agreements with South Korea, Colombia and Panama. Passage of those FTAs would be a terrible idea because all past evidence indicates that FTAs are not an effective tool for improving the U.S. trade balance and stimulating net job creation.

If the president was serious about boosting net exports he would take significant action to stop the currency management of our trading partners that has hamstrung the competitiveness of U.S. producers. He has the authority to do this without Congress – and swift and independent action could help to create millions of new jobs over the next 18 to 24 months.

The best estimates are that currency intervention by our trading partners (i.e., buying U.S. dollar-denominated assets to boost the value of the dollar and keep their own currency artificially cheap) raises the cost of U.S. exports – both to the intervening countries (China is the most important one) as well as to  every country where U.S. exports compete with goods coming from there. China’s currency intervention has also compelled Hong Kong, Singapore, Malaysia and Taiwan to follow similar policies in order to protect their relative competitiveness and to promote their own exports.

In a recent report on the benefits of revaluation, I showed that 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.

This revaluation done quickly would be a win-win – it would help workers in China and other Asian countries by reducing inflationary overheating and increasing workers’ purchasing power in those countries.

There are several different actions that can be taken by the Obama administration to put pressure on China. First, it can and should identify China and the other countries listed above as currency manipulators when the Treasury releases its Semiannual Report on International Economic and Exchange Rate Policies in mid-October. This would trigger mandatory negotiations which could result in sanctions if the issues are not resolved. Secretary Tim Geithner has consistently refused to name China or any other country as a currency manipulator, despite all available evidence to the contrary. The administration could also file complaints with the World Trade Organization (WTO) about China’s currency manipulation and request dispute resolution.

The administration could also endorse China currency legislation that has been introduced in both the House and the Senate. The Currency Reform for Fair Trade Act (HR 639, S 328) was passed by an overwhelming majority of both Democrats and Republicans in the House in 2010, but the bill died in the Senate. The scope of the bill is a bit limited – only 3 percent of Chinese imports would be affected – making it something of a rifle shot; larger artillery may be needed to persuade China that it’s in its own interests to revalue.

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.

The U.S. needs at least 11 million jobs to eliminate excess unemployment. Fiscal policy, if it can be enacted, is a good start, but the task before us is huge. We need a job strategy that pulls every available policy lever. The best place to start is with exchange rates—a lever that can be pulled by President Obama even if Congress refuses to help.


  • Anonymous

    Rob,

    The
    Trade Deficit Dimension of the Jobs Issue

    A great
    note on jobs. It’s time that policy makers in Washington stop bickering and do
    what the American people elected them to do — create and maintain a cohesive
    country with a stable, growing economy where honest, hardworking people can get
    good jobs. An unemployment rate of over 9% and a jobs gap of about 11 million
    is unacceptable.

    Like
    you, however, I am very concerned that virtually nothing is being said about
    the serious negative impact on American jobs of our unnecessary, unsustainable,
    and undesirable trade deficits.

    China’s undervalued
    currency is certainly part of the problem. Unfortunately, the strategy of badgering
    China
    for nearly a decade to revalue its currency years has produced little except
    increasingly testy push-back. Putting some bite into our bark with the threat
    or actual implementation of special anti-China tariffs as you suggest would probably
    help. But even this may not give the President a sufficient “lever.”

    The US President could
    certainly pull on a revaluation / tariffs lever, but that lever is not connected
    to Chinese policy making with an iron rod – only with a rubber band. I would
    suggest for three reasons that the President also needs a lever with a hard link
    to the value of the dollar/yuan exchange rate, regardless of what the Chinese choose
    to do:

    ·       
    We must be able to control the dollar’s value
    without begging the Chinese to take action — actions that they do not see as
    being in their best interests.

    ·       
    Our currency, not the Chinese currency, is the
    real problem. For at least the last ten years, US dollar has more overvalued
    than the Chinese yuan has been undervalued.

    ·       
    Third, China’s
    surpluses are largely the result of surpluses with the US — China generally has very little if
    anything in the way of surpluses with other countries. In contrast, only part
    of the US deficit depends on
    the deficit with China
    – we run deficits with a broad range of countries. This is further proof that
    the key problem is America’s
    overvaluation, not China’s
    undervaluation.

    In
    addition to continuing negotiations with the Chinese regarding the yuan
    exchange rate as you suggest, the Administration needs a really big lever that
    can more or less directly regulate the dollar’s value. Since the dollar’s
    overvaluation was caused largely by excessive inflows of foreign capital, the
    President’s lever should be based on moderating these inflows of foreign
    capital. Moderating such flows, which started with the dot.com investment
    bubble, would reduce upward pressures on the dollar, allowing it to move to a
    level that reduces not only our trade deficit with China, but deficits with
    many other trading partners around the world as well.

    While a
    tariff would only affect US imports from China, a more competitive dollar would
    make American products more competitive not only with imports, but also as
    exports. Focusing on attaining external balance from the export side as well as
    from the import side gives twice the bang for the adjustment buck, thereby
    reducing the total adjustment required.

    How can
    the Administration moderate the inflow of foreign capital to a level that is consistent
    with external balance?  Very simple. With
    support from Congress, introduce a Capital Inflows Moderation Charge (CIMC) on
    all incoming foreign exchange, making allowance only for forex coming in to purchase
    our exports of goods and services. This charge could be administered by the
    handful of major banks that handle almost all significant forex flows into the US.

    The CIMC
    charge would be set to zero as long as the current account deficit was less
    than, say, 2% of GDP. When this trigger level was exceeded, the charge would be
    set to 50 or 100 basis points (1/2 – 1 percent) of the value of the incoming
    foreign exchange. This small charge would slightly reduce the net yield to
    foreign investors, moderating the inflow of foreign exchange. As a result, the value
    of the dollar would gradually move to a level consistent with balanced external
    trade.

    If we
    could eliminate the US
    current account deficit of $494 billion projected by the IMF for this year by producing
    in America
    more import alternatives and more exports, we could put over 4 million Americans
    back to work. With a CIMC, we could do this:

    ·       
    without begging or bullying China to
    revalue the yuan; and

    ·       
    without spending a dime of US government money.

    In
    short, a Capital Inflows Moderation Charge would give us the lever we need to really
    make a difference.

    John
    Hansen

  • J Wilkes

    EPI – Get get out of the way !!….Let’s start the trade & commerce.
      Why the hold up?
    Panama Trade Agreement…. What’s the problem?

      EPI seems to be  having a fit over  an agreement with 2 small countries –   Panama or Columbia…. 

    Why do they keep  talking about  China?   EPI  continues to cite Chinese
      stats & dishonestly evaluates trade benefits to US workers.. ..

    What does China have to do with  these 2 countries.?

    It all boils down to EPI pro leftist labor perspective… unfair and skewed
    treatment for the “ultimate reality of free markets”.  Trade will benefit
    both countries…not threaten US Jobs.

    To get these 2 agreements going…. Obama needs to send them to
    the Hill.  The treaty agreements have been approved in Panama and Columbia.

    If Obama wants to sell some American goods to these guys  we need to
    get this going.  
     
         Delaying  continues  the  the onerous impact of tariffs=
    Over “  $3Billion ” in tariffs have been added to US goods since Obama
    got these agreements on his desk.

  • Anonymous

    The Trade Deficit Dimension of the Jobs Issue

    Rob,
    A great note on jobs. It’s time that policy
    makers in Washington stop bickering and do what the American people elected
    them to do — create and maintain a cohesive country with a stable, growing
    economy where honest, hardworking people can get good jobs. An unemployment
    rate of over 9% and a jobs gap of about 11 million is unacceptable.

    Like you, however, I am very concerned that
    virtually nothing is being said about the serious negative impact on American
    jobs of our unnecessary, unsustainable, and undesirable trade deficits.

    China’s undervalued currency is certainly part of
    the problem. Unfortunately, the strategy of badgering China for
    nearly a decade to revalue its currency years has produced little except
    increasingly testy push-back. Putting some bite into our bark with the threat
    or actual implementation of special anti-China tariffs as you suggest would
    probably help. But even this may not give the President a sufficient
    “lever.”

    The US President could certainly pull
    on a revaluation / tariffs lever, but that lever is not connected to Chinese
    policy making with an iron rod – only with a rubber band. I would suggest for
    three reasons that the President also needs a lever with a hard link to the
    value of the dollar/yuan exchange rate, regardless of what the Chinese choose
    to do:

    ·       
    We must be able to control
    the dollar’s value without begging the Chinese to take action — actions that
    they do not see as being in their best interests.

    ·       
    Our currency, not
    the Chinese currency, is the real problem. For at least the last ten years, US
    dollar has more overvalued than the Chinese yuan has been undervalued.

    ·       
    Third, China’s surpluses are largely the result of surpluses
    with the US — China generally
    has very little if anything in the way of surpluses with other countries. In
    contrast, only part of the US
    deficit depends on the deficit with China — we run deficits with a
    broad range of countries. This is further proof that the key problem is America’s overvaluation, not China’s
    undervaluation.

    In addition to continuing negotiations with the
    Chinese regarding the yuan exchange rate as you suggest, the Administration needs
    a really big lever that can more or less directly regulate the dollar’s value. Since
    the dollar’s overvaluation was caused largely by excessive inflows of foreign
    capital, the President’s lever should be based on moderating these inflows of
    foreign capital. Moderating such flows, which started with the dot.com investment
    bubble, would reduce upward pressures on the dollar, allowing it to move to a
    level that reduces not only our trade deficit with China, but deficits with
    many other trading partners around the world as well.

    While a tariff would only affect US imports
    from China,
    a more competitive dollar would make American products more competitive not
    only with imports, but also as exports. Focusing on attaining external balance
    from the export side as well as from the import side gives twice the bang for
    the adjustment buck, thereby reducing the total adjustment required.

    How can the Administration moderate the inflow
    of foreign capital to a level that is consistent with external balance?  Very simple. With support from Congress,
    introduce a Capital Inflows Moderation Charge (CIMC) on all incoming foreign
    exchange, making allowance only for forex coming in to purchase our exports of
    goods and services. This charge could be administered by the handful of major
    banks that handle almost all significant forex flows into the US.

    The CIMC charge would be set to zero as long as
    the current account deficit was less than, say, 2% of GDP. When this trigger
    level was exceeded, the charge would be set to 50 or 100 basis points (1/2 – 1
    percent) of the value of the incoming foreign exchange. This small charge would
    slightly reduce the net yield to foreign investors, moderating the inflow of
    foreign exchange. As a result, the value of the dollar would gradually move to
    a level consistent with balanced external trade.

    If we could eliminate the US current account deficit of $494 billion
    projected by the IMF for this year by producing in America more import alternatives
    and more exports, we could put over 4 million Americans back to work. With a
    CIMC, we could do this:

    ·       
    without begging or
    bullying China
    to revalue the yuan; and

    ·       
    without spending a dime
    of US
    government money.

    In short, a Capital Inflows Moderation Charge
    would give us the lever we need to really make a difference.

    John Hansen

    Millions of jobs left on the
    table

     

     Posted September 15, 2011 at 2:45 pm by Robert
    E. Scott

    Robert
    E. Scott

    It
    was great to see President Obama challenge congressional Republicans to do
    something real about jobs. His jobs bill, submitted to Congress Monday, would
    support 2.3 million new jobs and provide continuing support for another 1.6
    million jobs. But his plan requires congressional approval, which is about as
    likely as a World Series appearance for Washington’s
    sub-.500 Nationals this year.

    With
    unemployment at 9.1 percent, our economy desperately needs at least 11 million
    new jobs now just to get the unemployment rate down to pre-recession levels. We
    cannot allow the political stalemate in Washington
    to stand in the way of a full set of bold job creation initiatives. 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.

    The
    administration wants to stimulate exports, and that’s a good idea, but if and
    only if it improves the trade balance. Growing exports support domestic
    employment but growing imports displace domestic jobs; meaning that we need
    policy changes to boost net exports. The president included an oft-repeated
    promise in his speech last week that he will soon send legislation to Congress
    to implement Bush-negotiated free trade agreements with South Korea, Colombia
    and Panama.
    Passage of those FTAs would be a terrible idea because all past evidence
    indicates that FTAs are not an effective tool for improving the U.S.
    trade balance and stimulating net job creation.

    If
    the president was serious about boosting net exports he would take significant
    action to stop the currency management of our trading partners that has
    hamstrung the competitiveness of U.S. producers. He has the
    authority to do this without Congress – and swift and independent action could
    help to create millions of new jobs over the next 18 to 24 months.

    The
    best estimates are that currency intervention by our trading partners (i.e.,
    buying U.S. dollar-denominated assets to boost the value of the dollar and keep
    their own currency artificially cheap) raises the cost of U.S. exports – both
    to the intervening countries (China is the most important one) as well as to  every country where U.S. exports compete with
    goods coming from there. China’s
    currency intervention has also compelled Hong Kong,
    Singapore, Malaysia and Taiwan to follow similar policies
    in order to protect their relative competitiveness and to promote their own
    exports.

    In
    a recent report on the benefits of revaluation, I showed that 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.

    This
    revaluation done quickly would be a win-win – it would help workers in China
    and other Asian countries by reducing inflationary overheating and increasing
    workers’ purchasing power in those countries.

    There
    are several different actions that can be taken by the Obama administration to
    put pressure on China.
    First, it can and should identify China and the other countries
    listed above as currency manipulators when the Treasury releases its Semiannual
    Report on International Economic and Exchange Rate Policies in mid-October.
    This would trigger mandatory negotiations which could result in sanctions if
    the issues are not resolved. Secretary Tim Geithner has consistently refused to
    name China
    or any other country as a currency manipulator, despite all available evidence
    to the contrary. The administration could also file complaints with the World
    Trade Organization (WTO) about China’s
    currency manipulation and request dispute resolution.

    The
    administration could also endorse China currency legislation that has
    been introduced in both the House and the Senate. The Currency Reform for Fair
    Trade Act (HR 639, S 328) was passed by an overwhelming majority of both
    Democrats and Republicans in the House in 2010, but the bill died in the
    Senate. The scope of the bill is a bit limited – only 3 percent of Chinese
    imports would be affected – making it something of a rifle shot; larger
    artillery may be needed to persuade China that it’s in its own
    interests to revalue.

    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.

    The
    U.S.
    needs at least 11 million jobs to eliminate excess unemployment. Fiscal policy,
    if it can be enacted, is a good start, but the task before us is huge. We need
    a job strategy that pulls every available policy lever. The best place to start
    is with exchange rates—a lever that can be pulled by President Obama even if
    Congress refuses to help.

    W:BibchronScott
    ex JRH re blog, 2011.09.15.11.09.15.doc

  • Moreno Fioravanti

    Dear Mr. Scott, my name is Moreno Fioravanti, and I am President of Coliped, who together with Colibi is the European Bicycle Industry Association. I am very impressed by your studies. Is it possible to have your email adress? We have an antidumping case on China at present, which is saving our 60.000 green jobs in Europe against the Chinese predatory aggression, but I would be  very interested to kindly ask for your help on some Chinese subsidies subjects. I thank you very much in advance. Best regards and sincere compliments for your great work. Moreno Fioravanti email moreno.fioravanti@coliped.eu, website http://www.colibi.com or http://www.coliped.com