Commentary | Trade and Globalization

Panel says Chinese currency manipulation costs jobs

In the 13 years since she purchased Schmald Tool & Dye, Inc., a small manufacturing company based in Michigan, Laurie Moncrieff has struggled to sustain capacity in the face of mounting global competition. Although competition is a fact of life in business, Moncrieff says the terms on which she is forced to compete are a losing proposition.

“Small businesses are now competing against countries,” she said.

Moncrieff made her remarks during EPI’s March 12 panel on currency manipulation, where she provided a real life example of the commonly-voiced assertion that China’s currency policies were costing the United States millions of jobs. She described a global playing field that had become so uneven that Chinese goods were not just cheaper than comparable ones her company made, but often cost less than the price of the raw materials she used.

 “It does me no good to hire people if I cannot sell my goods,” Moncrieff said. With production capacity at her business down as low as 25%, she said she does not see how the business will be able to rebound unless lawmakers address trade and currency policy. William Jones, chairman of Cummins-Allison Corp., a Chicago maker of coin sorters and other currency handling machines, outlined a similar set of challenges which had forced him to stop making some products such as paper shredders, entirely. “If you level the playing field, we’ll go back to making shredders,” he said. “I’d love to hire more Americans: give me a reason to do it.”

The problem centers on China’s currency, which unlike those of most major economies, does not fluctuate freely against the dollar. While the value of its currency should have increased as China exported more and more goods, it has instead remained artificially low, and China has aggressively acquired dollars to further depress the value of its own currency. Conservative estimates of how much it is undervalued range from 25% to 40%. As a result, the low prices of the goods it sells on the world market are difficult if not impossible to compete with.  Currency manipulation also acts like a tariff – or a tax —  on U.S. exports to China. 

EPI’s panel, Currency Manipulation: How Should the U.S. Respond? also featured EPI International Economist Robert Scott, and Nobel Prize-winning economist Paul Krugman, who estimated that this currency manipulation has displaced as many as three million U.S. jobs and argued that the U.S. needed to adopt a tougher trade policy. While Chinese currency manipulation is not new, Krugman said it has reached unprecedented levels. “These surpluses do come at the expense of jobs,” he said.

Other panelists, including Leo Gerard, International President of United Steel Workers, and C. Fred Bergsten, Director of the Peterson Institute for International Economics, agreed that there was a growing consensus,  in the U.S. and among China’s other trade partners, that this currency manipulation had reached the point where a shift in policy was needed. “I think there is widespread recognition that currency manipulation equates protectionism,” said Bergsten, who argued it had become a policy of “exporting unemployment.”

The best way to address the problem remains a matter of debate, but Scott, who examined this problem in Re-Balancing U.S. Trade and Capital AccountsTrade Policy and Job Loss and other papers says the first step should be simple: “The Treasury Secretary should name China as a manipulator,” he said. “We’ve let this go on too long.”