Could something simple as hitting “close” on currency manipulation be the answer for 5.8 million new jobs being created in the United States? According to the Economic Policy Institute’s newest report, the answer is a resounding yes.
Hold On, What Exactly is “Currency Manipulation”?
Currency manipulation, also known as currency intervention, is the practice of one country buying or selling a great deal of currency on the market with the goal of tweaking their own currency. China’s an example used very often because they like to manipulate U.S. currency to simultaneously weaken it and strengthen their own. How they do it is by selling products to the U.S. and accepting U.S. dollars for it—this is fairly standard practice—but valuing their currency themselves instead of adhering to American or international standards. So when they deposit the U.S. dollars into a bank, they’ll do it at a lower rate, and then turn around and sell the surplus on the market, resulting in more—and a stronger—Chinese yuan.
China does this because it’s primarily an export-driven country, and cheapening the price of its exports means more buyers and a stronger Chinese economy. However, they’ve faced backlash from the international economic community and have since loosened their practices, but their yuan hasn’t appreciated in value as much as other markets would have liked.
How Does Currency Manipulation Affect the Job Market?
Rapid economic growth has historically not worked out, with the most recent example being the U.S. housing market. Housing prices exploded in a very short period of time which, in turn, triggered a near-global recession that the world still hasn’t fully recovered from. In the case of global currency manipulation, the theory is that ending it would rebalance annual goods trade and American manufacturing; if Chinese exports aren’t as cheap as they used to be, buyers will spread out and look to other nations, one of them being the U.S.
The EPI Report
Just released, the report by the liberal-leaning Economic Policy Institute makes the claim that up to 5.8 million new jobs could be created if global currency manipulation ended over the next three years. Currently, the U.S. is operating with a $7.3 billion annual trades good deficit, otherwise understood at how much they’re losing out to other countries’ exports while their own sit idle.
The report claims that if exchange rates were realigned, the U.S. would gain back $500 billion each year in trade deficits in the next three years, with several key effects:
The loss of 5.7 million jobs over the last 15 years would be more than erased, with an extra million new jobs created from an increased demand for U.S.-manufactured exports
The increase of U.S. exports would mean up to 2.3 million manufacturing jobs are created
The U.S. GDP would increase by 4.9% to $720 billion a year
The federal budget deficit could be reduced as much as $266 billion by 2015 because of a combination of more tax revenues and less money funneled towards safety nets
As good as eliminating currency manipulation could be, one major problem with this is the U.S. is trying to play someone else’s game with their own rules. There’s just no way Americans can compete with China in terms of manufacturing; those days are long gone (see: Detroit auto industry.) China is a country of more than 1 billion, with more stringent rules and regulations imposed on its citizens than in the U.S. They pay their workers much lower wages, which is how they keep the costs of their exports down. The U.S. just can’t follow the same path and pay their workers a quarter of what they earn now (see: Detroit auto industry) without severe backlash, and without lower wages, the price of exports wouldn’t be as attractive as Chinese exports are to foreign buyers.
It’s a nice thought, but the real key to creating millions of new jobs in the U.S. isn’t to play by another country’s rules, but to create our own. Americans need a new, innovative edge in the world to stay competitive and gain money, and the manufacturing industry just isn’t it anymore.