New Report Released Today Shows that Addressing Undervalued Currency Could Support Creation 2.25 Million Jobs and Increase U.S. GDP by $285.7 Billion
WASHINGTON, D.C. – On the heels of a new report showing that addressing currency manipulation could support the creation of 2.25 million American jobs, U.S. Sens. Sherrod Brown (D-OH) and Olympia Snowe (R-ME) called for swift passage of their Currency Reform for Fair Trade Act of 2011. This bipartisan legislation would give the Obama Administration additional tools to address China’s currency manipulation.
“One year later, Chinese currency manipulation is still hurting American manufacturing and American job creation efforts. China’s unfair currency manipulation has gone on for far too long. And with up to 2 million jobs hanging in the balance, Congress must take action immediately,” Brown said. “Our straightforward, bipartisan bill would empower the U.S. government to combat this illegal trade subsidy in trade cases. By combating currency manipulation, we can help level the playing field for American manufacturers and speed up our economic recovery.”
“China’s trade practices have undercut true market competition and its currency devaluation is suppressing the ability of American businesses to grow and compete on a global playing field,” Snowe said. “Unfortunately, in its reluctance to impose countervailing duties on subsidized exports from countries that continue to undervalue their currency, the Commerce Department has contributed to the loss of thousands of American jobs to our foreign competitors. I urge my colleagues to pass the bipartisan legislation I have introduced with Senator Brown to ensure the government is equipped to respond to this manipulation on behalf of our small businesses and job creators.”
One year ago, on June 18, 2010, Chinese leaders committed to “allow the country's currency to float more freely against the dollar and other foreign currencies.” Despite this, the Peterson Institute for International Economics reported last month that the real effective exchange rate of the RMB has not changed from May 2010 to April 2011. In fact, the U.S. trade deficit with China grew to a record $273 billion in 2010.
A new report released today 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.
“A year has passed since China made a phony pledge to let the yuan appreciate,” said Scott Paul, executive director of the Alliance for American Manufacturing (AAM). “If the Administration will not get tough and demand that China play by the rules, Congress will have no option but to pass tough bipartisan legislation to counter the artificial and unfair advantage that China enjoys on trade. Doing so would be a deficit-reducing, job-creating, no-cost stimulus that is desperately needed.”
“It’s in the interest of both United States and China to let the yuan appreciate,” said EPI’s Robert Scott, author of the report. “From the U.S. point of view, it would mean increased GDP, more jobs, lower unemployment and deficit reduction. For China it will lower inflation, raise the purchasing power of Chinese workers, and help rebalance their economy. Chinese revaluation is a win-win scenario for the global economy.”
Brown and Snowe’s bill is similar to a measure passed in 111th Congress, H.R. 2378, the Currency Reform for Fair Trade Act of 2010, which 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.
"Recent studies indicate China's currency is even more undervalued today than it was a year ago, when China promised us progress," said Ways and Means Committee Ranking Member Sander M. Levin. "Eight years of quiet diplomacy have yielded meager results. It is time for Congress to provide relief to U.S. companies and workers injured by China's practices, and to provide U.S. officials greater leverage in their negotiations with China. The same legislation that passed the House last fall by a vote of 348 to 79, with majorities of both parties voting in support, should be taken to the House floor without further delay."
“There's a reason why other countries seek ways to bend international trade laws to their favor,” said Representative Tim Murphy (R-PA), sponsor of the Currency Reform for Fair Trade Act of 2011 in the U.S. House of Representatives. “It's because the American manufacturing sector is the most sophisticated and highly skilled workforce in the world. One of the most damaging tactics other countries use to undermine the American manufacturing sector is to undervalue their currency so foreign manufacturers build an automatic price discount into their products in the international marketplace, giving them an unfair competitive advantage. The end result costs us jobs back home. As Congress works on a strategy to revitalize our domestic manufacturing sector and get more Americans back to work, the first and most needed step in this strategy is getting the Currency Reform for Fair Trade Act signed into law. This legislation stops the practice of currency manipulation and ensures all our trading partners follow established rules of fair play.”
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.