WASHINGTON, D.C. – In the wake of new trade deficit figures released today showing that the U.S. trade deficit increased to its highest level in more than two and a half years – with the U.S. trade deficit with China widening 15.6 percent to $24.96 billion in May – U.S. Sen. Sherrod Brown (D-OH) renewed his call for swift passage of the Currency Reform for Fair Trade Act of 2011. This bipartisan legislation would give the Obama Administration additional tools to address China’s currency manipulation.
“While we debate the budget deficit, too many Washington politicians are ignoring the trade deficit – and its dangerous effects on American jobs,” Brown said. “The best way to get our fiscal house in order is to get Americans working again – and that means cracking down on practices like Chinese currency manipulation, which hurts Ohio manufacturing and American job creation efforts. By combating currency manipulation, we can help level the playing field for American manufacturers and speed up our economic recovery.”
The new trade deficit figures released today follow a new report released last month showing that addressing Chinese currency manipulation could support the creation of 2.25 million American jobs.
A report released in June by the Economic Policy Institute examined the effects on the American economy if China was to revalue the yuan to its equilibrium level, and other Asian countries followed suit. The report found significant benefits for the American economy:
- U.S. GDP would increase by as much as $285.7 billion (1.9 percent);
- As many as 2.25 million American jobs would be created – enough to increase total U.S. employment by 1.6 percent; and
- The U.S. budget deficit would decrease by up to $71.4 billion per year – or between $621 to $857 billion over ten years, if sustained.
Along with Sen. Olympia Snowe (R-ME), Brown is fighting to pass the Currency Reform for Fair Trade Act of 2011. The bipartisan bill mirrors a similar measure passed in 111th Congress, H.R. 2378, the Currency Reform for Fair Trade Act of 2010. This bill passed in 2010 by a vote of 348-79, including 99 Republicans. The legislation, which directs the U.S. Department of Commerce to treat currency undervaluation as a prohibited export subsidy, would ensure the government is equipped to respond on behalf of American workers and manufacturers by imposing countervailing duties on subsidized exports from countries like China.
The impact of China’s currency manipulation has been widely documented by economists:
- Paul Krugman, winner of the 2008 Nobel Prize in Economics, estimates that China’s exchange rate policy reduces U.S. GDP by 1.4 to 1.5 percentage points annually and reduces U.S. employment by 1.4 or 1.5 million jobs.
- Fred Bergsten, Director of the Peterson Institute for International Economics, estimates that a 20-40% appreciation of the RMB would result in $100-$150 billion improvement in the U.S. trade deficit and would generate 700,000 to 1 million jobs in the United States.
- Steven Dunaway, a former IMF official and senior fellow at the Council on Foreign Relations, has noted that some analysts expect an appreciation would add half a percentage point to GDP in the United States and other developed countries.”
 See Paul Krugman, “Chinese New Year,” New York Times, January 1, 2010 (China “follows a mercantilist policy, keeping its trade surplus artificially high. And in today’s depressed world, that policy is, to put it bluntly, predatory.”); and Comments at Economic Policy Institute Forum, March 12, 2010.
 C. Fred Bergsten, Comments at Economic Policy Institute Forum, March 12, 2010; C. Fred Bergsten, “How Best to Boost Exports,” Washington Post, February 3, 2010; A15 (The exchange rate “is the most important factor in determining U.S. export competitiveness.”).
 Steven Dunaway, “China’s Exchange Rate Policy: The Heat Is On,” Council on Foreign Relations Expert Brief, February 18, 2010.