Tag Archive | "currency manipulation"

Morici: 2.11.11: Trade Deficit Report (updated)


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The following piece is by Peter Morici, a professor at the Smith School of Business, University of Maryland School.

Trade Deficit Drags on Growth and Jobs Creation

Friday, the Commerce Department to reported the deficit on international trade in goods and services was $40.6 billion in December, up from $38.3 billion in November and $27.1 billion in mid 2009, when the economic recovery began.

This rising deficit subtracts from demand for U.S. goods and services, just as stimulus spending and additional temporary tax cuts add to it. The deficit is slowing the recovery and jobs creation, and the Obama Administration and Republicans in Congress have not offered a credible policy to significantly change it.

Jobs Creation

The economy added 36,000 jobs in January, and that was particularly disappointing after surges in holiday retail sales, business spending and auto sales.

Americans have returned to the malls and new car showrooms but too many dollars consumers spend go abroad to purchase imports but don’t return to buy U.S. exports. This leaves too many Americans jobless and wages stagnant, and the resulting slow growth leaves state and municipal governments with chronic budget woes.

By January 2014, the private sector must add more than 13 million jobs to bring unemployment down to 6 percent. Current policies are not creating conditions for 5 percent GDP growth that could be achieved and is necessary for businesses to hire 370,000 workers each month.

Since December 2009, the private sector has added 92,000 jobs per month, but most of those have been in government subsidized health care and social services, and temporary business services. Netting those out, core private sector jobs creation has been a meager 42,000 per month—that comes to less than 14 permanent, non-government subsidized jobs per county for more than 5000 job seekers per county.

During the early stages of an economic expansion, temporary jobs appear first, but 19 months into the recovery, permanent, non-government subsidized jobs creation should accelerate. Instead, core private sector jobs were up only 43,000 in January—down from 73,000 in the fourth quarter.

Economic Growth

Commerce Department preliminary estimates indicate GDP growth was only 3.2 percent, significantly disappointing Wall Street economists.

Consumer spending, and business technology and auto sales all added strongly to demand and growth, and exports actually outpaced imports for the first time in a year. Pessimism, caused by rising gasoline prices, health care reform, and import competition, caused businesses to run down inventories rather than add new capacity and employees.

Fourth quarter exports got a boost from a weaker dollar against the euro earlier in 2010—the export effect of a weaker or stronger dollar occurs with a lag of several months; however, this situation is likely to reverse in the 2011, owing in particular to Europe’s continuing sovereign debt woes. November will likely prove to be the low point for the trade deficit, as imports of oil and consumer goods from China overwhelm any further progress in U.S. export growth.

Oil and goods from China account for nearly the entire trade deficit, and without a dramatic change in energy and trade policies, the U.S. economy faces large trade deficits and unacceptably high unemployment indefinitely.

The de facto moratorium on new offshore drilling permits in the gulf, imposed by onerous licensing requirements, and policies that limit development of other conventional energy supplies are premised on false assumptions about the immediate potential of electric cars and alternative energy sources, such as solar panels and windmills. In combination, limits on conventional energy development and excessive optimism about alternative energy technologies are making the United States even more dependent on imported oil and more indebted to China and other overseas creditors to pay for it.

Led by Ford and GM, the automobile industry is demonstrating it can build many more attractive and efficient gasoline-powered vehicles than it is selling now, and a national policy to accelerate fleet replacement would spur growth and create jobs much more rapidly than investments in battery and electric technologies.

The trade gap with China did ease to $20.7 billion but remains the largest U.S. deficit with any country. This gap was affected by depletion in U.S. inventories in the fourth quarter and will likely head up again, especially in Spring, after the Chinese New Year. The latter celebration often effects the pace of Chinese exports, bunching shipments into March.

To keep Chinese products artificially inexpensive on U.S. store shelves, Beijing undervalues the yuan by 40 percent. It accomplishes this by printing yuan and selling those for dollars other currencies in foreign exchange markets. Annually, those purchases exceed $450 billion or 10 about percent of China’s GDP and 35 percent of its exports.

President Obama has pleaded with China to stop manipulating its currency, but Beijing shrewdly recognizes President Obama lacks the will to meaningfully counter Chinese mercantilism with strong, effective actions; hence, Beijing offers token gestures and cultivates political support among U.S. businesses like Caterpillar who lead in outsourcing jobs to China and profit from Chinese protectionism at the expense of American workers.

President Obama should impose a tax on dollar-yuan conversions in an amount equal to China’s currency market intervention divided by its exports—about 35 percent. That would neutralize China’s currency subsidies that steal U.S. factories and jobs. It is not protectionism; rather, in the face of virulent Chinese currency manipulation and mercantilism, it’s self defense.

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Exports and jobs: less than half the story


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The following article by Robert E. Scott appeared online here at the Economic Policy Institute’s website.

President Obama talked about doubling exports in the State of the Union Address last night as a strategy to create jobs. It’s a great sound bite, but woefully incomplete economics. While exports support American jobs, imports displace them; when imports grow faster than exports, our trade deficit expands and American jobs are lost. Between 2001 and 2007 (both business cycle peaks), we lost 3.4 million U.S. manufacturing jobs, and the fact that the trade deficit as a share of GDP rose by roughly one-third is a key reason why. Lately, when the president has talked about jobs and trade, he mentions the jobs associated with exports but ignores those lost due to growing imports. It’s like watching baseball, but only counting runs scored by the home team—lots of fun, but it won’t tell you anything about who is ahead.

Last week, President Obama talked a lot about expanding exports to China. But he rarely mentioned imports or the trade deficit. We heard a lot about unfair trade and job losses during Obama’s primary campaign, but those words disappeared from his speeches after the election. One reason may be that President Obama has surrounded himself with advisors from multinational companies, who have more to gain from outsourcing than from domestic job creation. For example, just this week, the president appointed GE Chief Executive Officer Jeffrey Immelt to head his new Council on Jobs and Competitiveness.

Our exports to China did increase rapidly last year—by about $23 billion—and this did support job creation. But imports increased about three times as fast—by $71 billion—which cost the United States many more jobs than exports supported. On balance, the growth in our trade deficit with China cost the United States at least a half million jobs in 2010. We have huge trade deficits with China because of massive currency manipulation and many other unfair trade practices. Currency manipulation acts like a subsidy on all of China’s exports to the United States, and in essence puts a tax on U.S. exports to China and every country in the world where we compete with China. The United States could recover at least a million jobs by forcing China to revalue its currency now.

We will have a record trade deficit of nearly $275 billion with China in 2010. President Obama failed to acknowledge in his State of the Union address that trade with China cost us a half million jobs in 2010; the U.S. China trade deficit is growing rapidly and job displacement will worsen in the future unless something is done to end China’s currency manipulation and other unfair trade policies.

The Obama administration’s trade policies are failing because corporate executives are designing them. Many key staff members have close ties to multinational corporations and Wall Street, such as new White House Chief of Staff Bill Daley (former executive of JPMorgan Chase), former Treasury official Gene Sperling, recently appointed head of the National Economic Council in the White House (formerly worked for Goldman Sachs); and recently departed National Economic Council director Lawrence Summers, who received $5.2 million from a Wall Street hedge fund between stints in the Clinton and Obama administrations. Summers, Sperling, and Treasury Secretary Timothy Geithner (also from Wall Street) played key roles in opposing efforts within the Obama administration to impose tariffs on Chinese goods if the Chinese government continued to manipulate their currency.

Multinational corporations are responsible for outsourcing millions of U.S. jobs. What’s good for their corporate profits (and executive pay) often conflicts with the national interest of the United States to maximize job creation and production in this country.

China’s policies don’t only benefit China; U.S.-based multinational companies sometimes profit enormously from China’s unfair trade and industrial policies and currency manipulation. China spent $199 billion last quarter alone buying foreign currency reserves (primarily treasury bills) in order to keep its currency artificially low. They now hold $2.85 trillion in foreign currency reserves. The best estimates suggest that the Chinese yuan (RMB) is at least 30-40% undervalued. That amounts to a subsidy of 30-40% on all the goods imported from China by GE and other multinational companies. These companies would lose billions in profits if China revalued the RMB and made these goods more expensive, so they are actively opposing efforts to compel China to revalue.

Multinational corporations don’t need government assistance—they are sitting on $2 trillion in cash that they are investing in financial securities, rather than real capital that would create new jobs. They have all the cash they need to invest in R&D and to expand their factories. They can also afford to file trade cases to protect their fair trade and patent rights, which can cost millions of dollars for a single case. Instead, however, while they hoard their cash at home, they are investing abroad.

China is giving hundreds of billions in subsidies to multinational corporations to move factories from the United States and other countries and locate them in China. For example, Evergreen Solar announced last week that it will close its solar cell factory in Massachusetts, which opened in 2008 with $43 million in state subsidies. Chinese banks offered Evergreen financing for two-thirds of the cost of its new plant at rates “as low as 4.8%” with no principal payments or interest payments due until the end of the loan in 2015. Even cheap labor is beside the point. United States clean energy loan guarantees can’t compete with the Chinese loan subsidies.

This is another reason why multinational companies will oppose (overtly or covertly) efforts to enforce fair trade laws by the Obama administration. Americans who work for a living should be outraged that the president has appointed an executive of a firm that has offshored tens of thousands of jobs to serve as one of his key advisors.

GE’s Immelt, the president’s newest CEO advisor, says that he wants to create jobs in the United States. But as Scott Paul of the Alliance for American Manufacturing showed last week, Immelt and GE have been leading the charge of the outsourcers. He notes that GE has “slashed their American workforce to fewer than 150,000, [and] dramatically expanded its global presence, now employing over 300,000 workers worldwide.”

The president visited Immelt at a GE plant in Schenectady, New York, last week where they celebrated $45 billion in new trade deals with China, like the joint venture GE just signed with China AVIC, an avionics firm that supplies components to both civilian and military jet makers in China. GE claims that the deal will create jobs in the United States, but they are giving away the keys to their kingdom by transferring key avionics technology to China AVIC. GE put $200 million and its technology in the deal, and the Chinese partner is putting up $700 million. GE is effectively selling its treasure for beads and trinkets.

This is supposed to be a 50-year deal, but the way these deals usually work, the Chinese partner will appropriate GE’s technology and then kick them out in a few years. It is conceivable that within 10 years China AVIC will be a global leader in avionics, and GE will be out of the business. China’s indigenous innovation policies force foreign companies who want to do business in China to transfer technology to Chinese firms, according to the National Association of Manufacturers. The deal may boost short-term profits and Jeffrey Immelt’s bonuses, but thousands of American jobs will disappear. Who in our government is representing those workers?

The deal will supposedly be limited strictly to domestic avionics, but some fear it will give their military aircraft access to cutting edge U.S. technology. Two weeks ago, when Defense Secretary Gates visited China, their military conducted the first test flight of a new stealth fighter. China is clearly trying hard to catch up fast.

Small- and medium-sized manufacturers create most of the jobs in the United States—not the giant corporations. Unlike the big companies, small- and medium-sized firms cannot get access to enough capital to finance working capital or expansion needs. President Obama should have appointed someone like Laurie S. Moncrieff, President of, Adaptive Manufacturing Services and Schmald Tool & Die, Inc., a dynamic business leader who speaks for small- and medium-sized firms. (Moncrieff appeared at an EPI currency forum last March.) She would make an outstanding Chair for the new White House Council on Jobs and Competitiveness.

In his State of the Union Address, the president proposed new investments in infrastructure and measures designed to boost competitiveness. We do need to invest hundreds of billions of public and private dollars each year for the next few years to rebuild our aging infrastructure and lay the foundations for new clean energy industries and for conservation. And those investments can support millions of new jobs. But their effectiveness will just be blunted if we shy away from fixing our trade problems with China and other countries that use unfair trade policies to take away jobs and production from U.S. workers and domestic companies.

Without effective trade policies, too much of the boost to U.S. jobs that can be gained from our rebuilt highways and railroads will leak away in the form of rising imports.

When the President talks about trade, he needs to address both imports and exports. He needs to tell us how he plans to end currency manipulation this year, and his plans for ending unfair trade. Eliminating the U.S. non-oil trade deficit would support over five million U.S. jobs, generate hundreds of billions of dollars in new tax revenues, and reduce spending on unemployment and other social services over the next few years. It’s time to end illegal currency manipulation and unfair trade practices, and to do that the president needs a new crop of advisors who care more about American job creation than outsourcing and multinational corporate profits.

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Has Obama Assumed the Position of Salesman-in-Chief to China?


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The following is a rush transcript of the Amy Goodman show on Democracy Now. Robert Scott, senior international economist with the Economic Policy Institute, was among her guests. You can watch the broadcast here.

What do the heads of Goldman Sachs, JPMorgan Chase, Microsoft, Motorola, General Electric, Boeing and the Carlyle Group have in common? They all attended last night’s State Dinner with President Hu Jintao. Earlier the White House announced $45 billion in new trade deals with China, including a $19 billion deal with Boeing and a package with GE expected to generate more $2 billion in U.S. exports. Some economists say the deals will hurt U.S. efforts to end the jobless Great Recession. “President Obama has assumed the position of salesman-in-chief for companies like Boeing and General Electric who are actually engaged, along with many other multinational businesses, in primarily outsourcing American jobs to China,” says guest Robert Scott, senior international economist with the Economic Policy Institute.

JUAN GONZALEZ: We turn now from human rights in China to the country’s economic relationship with the United States. Top U.S. business leaders met with Presidents Obama and Hu Jintao on Wednesday to call for increasing exports to China. Just before the meeting, the White House announced a list of trade deals with China totaling $45 billion. The list includes a $19 billion deal with Boeing for aircraft technology and a package with General Electric that’s expected to generate more than $2 billion in U.S. exports.

After meeting with executives from several U.S. corporations, Obama said he hoped to ease some of the friction over trade between the U.S. and China.

PRESIDENT BARACK OBAMA: Even with China’s enormous population, the United States still does more trade with Europe than it does with China. That, I think, gives an indication of the amount of progress that can be made, if we are consulting with each other, if we are hearing specifically from businesses in terms of how we can ease some of the frictions that exist in our trading relationship. And so, my hope is that today, in the brief time that we have, we’ll be able to hear some concrete ideas about how we make sure that fair—that trade is fair, that there is a level playing field, how can we protect intellectual property, how can we promote innovation, how can both of our governments remove barriers to trade and barriers to job creation. And with China’s growing middle class, I believe that over the coming years we can more than double our exports to China and create more jobs here in the United States.

AMY GOODMAN: Later today, President Hu plans to address trade and economic concerns at the U.S.-China Business Council in Washington.

Joining us now to discuss the U.S.-China relationship in more depth is Robert Scott, senior international economist with the Economic Policy Institute, a D.C.-based think tank that focuses on the economic condition of low- and middle-income Americans. Staying with us is Marc Blecher, who is the professor of politics and East Asian studies at Oberlin College and author of several books, including China Against the Tides.

Robert Scott, let’s begin with you on China’s economy and its significance here.

ROBERT SCOTT: Well, China is perhaps one of the United States’ most significant trading partners, and we have the most unequal trading relationship with China of any country in the world. We import almost five times as much from China as we export to them. Over the last nine years, the United States has lost about two-and-a-half million jobs due to growing trade deficits with China, more than a half-million jobs in the last year alone. We’ve lost jobs in every state. We’ve lost jobs in every congressional district in the country. And I’ve produced studies that have documented all of this.

JUAN GONZALEZ: Yet, Mr. Scott, none of that was part of the discussion between President Obama and President Hu in the past day.

ROBERT SCOTT: Well, that’s correct. I think in these discussions, unfortunately, President Obama has assumed the position of salesman-in-chief for companies like Boeing and General Electric who are actually engaged, along with many other multinational businesses, in primarily outsourcing American jobs to China. So, much of the discussion concerned the terms under which U.S. firms could do business in China and that sort of thing.

President Obama seems to have a gap in his vocabulary. He almost never mentions the word “imports.” He talks constantly about exports, and that’s all they’ve talked about yesterday in the negotiations. They never talk about the vast excess of imports over exports. And that’s what’s driving trade and trade-related job loss here in the United States.

JUAN GONZALEZ: Marc Blecher, I’d like you to respond to that, but also to talk about the—much of these imports are based on cheap Chinese labor. One of the things that’s happened in the last couple of years is this amazing upsurge among Chinese workers, seizing factories, demanding huge increases in wages. How do you see that developing in terms of the vast dissent that you’ve talked about that exists within Chinese society and how that will impact on future trade and imports to the U.S.?

MARC BLECHER: Two comments. On the employment question, while there’s no question that China has attracted a certain amount of employment from the U.S. and that the U.S. has suffered a certain amount job loss to China, I worry that we’re using China as a whipping boy for our employment problems. If you look back over the past 30 years, the whole neoliberal period that we’ve had, the vast majority of employment losses in this country have not been due to outsourcing. They have been due to technological upgrading. And that’s an inevitable problem. And the U.S. government, over all those years, over many presidents, has not had an active labor market policy to try to help us cope with that by upgrading our labor force. Instead, we’ve cut support for education and technology and so on. So, I haven’t seen the Obama administration do much about the enormous job losses in this country over the past two years. I think they’ve tried, and most of the responsibility for this goes to opposition in Congress to spending more money for job stimulation. But to use China as a whipping boy for our employment problems, I think, is something we ought to be wary about.

As far as your second question, the tremendous upsurge in labor protest in China is something that is amazing. It’s something that we should actually applaud. On the one hand, it shows that—–what I was saying earlier, that there’s huge scope for political expression in China. In every Chinese city, every single day, there are protests about labor issues, about people being evicted from their homes, and so on. And these people don’t get arrested and all thrown into jail. If they did, they wouldn’t keep protesting. Instead, the government has figured out a strategy of coming in, paying them off, and trying to cope with their problems.

Rising wages in China, improved working conditions in China, are one of the best ways to help American workers, because sweatshop labor is what’s attracting so much of the employment loss that we do have with China. And, you know, then we have a race to the bottom, where wages and working conditions are depressed here to meet Chinese levels. The best thing we can do is to help encourage the growth of a lively labor movement in China. The American labor movement is beginning to do this. I would like to hear critics of human rights in China talk more, as Sharon did, about rights of workers and farmers, rather than just imprisoned political dissidents. I think that’s a good thing for American working people, but it’s also a good thing for the American economy as a whole, because if we stop relying on so much Chinese imports, because they become a little more expensive with improved conditions in China, then that can only help revive our economy here.

AMY GOODMAN: Some of the major deals that were made, the announcement yesterday, for example, of—what was it?—$19 billion deal for 200 Boeing airplanes. Also, General Electric announced five agreements with Chinese partners, including a joint venture to—for aircraft avionics. Talk about the significance of this, Robert Scott, and also—I mean, among those who were at the dinner, and including the heads of GE and Boeing and Microsoft and Carlyle Group, was Bob King, the head of UAW, United Auto Workers.

ROBERT SCOTT: Yes. Well, let me respond first to, I think, a misperception that Professor Blecher, I think, promoted a moment ago about productivity growth. United States has had productivity growth for generations. That’s not the cause of job loss. For example, during President Clinton’s term, we had created 23 million jobs. We had stable manufacturing employment. The problem really started in 2000. Since then, we’ve lost six million manufacturing jobs. We had essentially the same rates of productivity growth in the ’90s as we did in the last decade, and yet in the last decade we lost six million manufacturing jobs. And that—the entire reason for that is largely due to the growth of imports, and China is the largest source of the growth in those imports.

Now, in terms of these deals that were cut and announced yesterday, they were actually cut a year or two ago. These deals had been announced several years ago. This is just a formal government approval of the sale of these 200 jets by Boeing to the Chinese airlines. And these sales are going to be accumulated over the next decade or so. They’re going to be a drop in the bucket compared to the growth in imports from China, which have surged enormously just in the past year, as I mentioned earlier.

I’m also very concerned about the GE deal. GE is essentially giving away its technological keys to the kingdom in exchange for a few short-term sales. They’ve set up a joint venture with a Chinese company. They throw in $200 million and their most advanced avionics technology to their Chinese partner, who pays them handsomely for it, who puts in $700 billion, and in return they’re going to get some sales to Chinese aircraft manufacturers, which many other companies have been competing for. But there’s a pattern here. What happens is that the Chinese joint venture partners tend to suck the technology out of their foreign partners, and then they kick them aside in a few years. So, GE says this deal is good for 50 years; I can almost guarantee you that the deal will end in just a few years. And as a result, GE will find that it’s no longer in the business of making avionics equipment. That business will have shifted to this Chinese company. And that’s the problem we run into.

AMY GOODMAN: And Robert Scott, the story of—the story of Evergreen Solar, an amazing story of a U.S. company that received $43 million in state subsidies from Massachusetts for its solar panel factory in 2008, now announced it’s shutting the factory and moving to China.

ROBERT SCOTT: That’s right. And the reason for that is because China has offered huge subsidies to Evergreen and other solar manufacturers to build their plants in China. And that’s not about cheap labor. Cheap labor has nothing to do with it. The biggest cost of building a solar plant is the cost of the plant itself, the capital investment, which is rising exponentially. China offered this company interest rates of 4.8 percent, and they financed 60 percent of the new plant in China. And they don’t—Evergreen doesn’t even have to make a payment of interest or principal on those loans until 2015. So this is a tremendous subsidy to Evergreen. And this is really symptomatic of a much bigger problem of subsidies and currency manipulation, in particular, which makes it almost impossible for U.S. firms to compete with China on a level playing field.

JUAN GONZALEZ: But can you blame China for wanting to continue to develop its own national economy, given the fact that it is the largest country in the world and its people have been in poverty for so long, that even in terms of the issue of developing of bullet trains, of green technology, of infrastructure development, China is forging ahead to try to build a more prosperous society? So, you can’t really blame them. The question is, what is the United States doing in terms of assuring the future of its own economic development?

ROBERT SCOTT: Well, I certainly encourage China to maximize its own development, encourage them to develop their own green technology. The problem is that they are violating many, many standards of the World Trade Organization, the IMF, that they agreed to when they joined the WTO in 2001. For example, currency manipulation. China has spent almost $800 billion in the last year alone manipulating its currency. That makes its products about 40 percent cheaper than they would be on the open product and acts like a tax on U.S. exports to China and everywhere else in the world. So, China is competing unfairly. If China wants to play the game like everybody else, I welcome that competition. But I think China’s problem is they focus too much on exports and not enough on developing their domestic economy, where they have tremendous potential for growth.

AMY GOODMAN: Marc Blecher, we just have 30 seconds. Your final response?

MARC BLECHER: The issue of protectionism is a bit of a red herring or a bit hypocritical for us. All the major Western capitalist economies, in their formative periods, protected their economies. China is expected to develop its economy at a time of WTO and free trade. They are not going to be able to do that and support a population that they need to. So, I think we need to understand their need to protect things, and I would like to see us have an active industrial policy, like China does, so that we would be developing high-speed rail at the pace that they are and getting out of our airplanes and out of our cars and into high-speed rail. China is a model for this, and the U.S. state should follow them.

AMY GOODMAN: Thanks so much, both of you, for joining us—Marc Blecher, professor at Oberlin College, for making your way into Cleveland. And Robert Scott, senior international economist at Economic Policy Institute, author of ” Counting the Jobs Lost to China,” thanks so much for being there in Washington, D.C.

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Morici: 1.11.11: Trade Deficit and Jobs Drought


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The following piece was written by Peter Morici, a professor at the Smith School of Business, University of Maryland School.

The economy added 103,000 jobs in December but that was disappointing after recent surges in retail sales and business spending. Simply too many dollars Americans spend go to imports but don’t return to buy U.S. exports, leaving too many Americans jobless, wages stagnant, and Federal and State governments with budget woes.

Thursday, analysts expect the Commerce Department to report the deficit on international trade in goods and services was $40.7 billion in November, up from $27 billion when the recovery began. This rising deficit subtracts from demand for U.S. products, just as stimulus spending and tax cuts add to it. The deficit is taxing growth and jobs creation, and the Obama Administration has not offered a credible policy to reduce it.

Jobs Creation

By the end of 2013, about 13 million private sector jobs must be added to bring unemployment down to 6 percent. Current policies are not creating conditions for 5 percent GDP growth that could be achieved and is necessary for businesses to hire 350,000 workers each month.

Since December 2009, the private sector has added 112,000 jobs per month, but most of those have been in government subsidized health care and social services, and temporary business services. Netting those out, core private sector jobs creation has been a meager 58,000 per month—that comes to 18 new jobs per county for more than 5000 job seekers per county.

During the early stages of an economic expansion, temporary jobs appear first but 18 months into the recovery, permanent, non-government subsidized jobs creation
should be accelerating. Instead, core private sector jobs were up only 60,000 in December.

Trade Deficit

Imports grew so much more rapidly than exports that the trade gap subtracted 1.7 percent from demand for U.S. goods and services and third quarter GDP.

But for the growing trade gap, GDP would have increased 4.3 percent instead of 2.6 percent. At that pace, unemployment would fall to about 7 percent by the end of 2013.

Oil and goods from China account for nearly the entire trade deficit, and without a dramatic change in energy and trade policies, the U.S. economy faces unacceptably high unemployment indefinitely.

Limits on offshore drilling and otherwise curtailing conventional energy supplies—premised on false assumptions about the immediate potential of electric cars and alternative energy sources—are making United States even more dependent on imported oil and more indebted to China and other overseas investors.

Detroit could build many more attractive and efficient gasoline-powered vehicles now, and a national policy to accelerate fleet replacement would spur growth and create jobs much more rapidly than investments in battery and electric technologies.

To keep Chinese products artificially inexpensive on U.S. store shelves, Beijing undervalues the yuan by 40 percent. It accomplishes this by printing yuan and selling those for dollars other currencies in foreign exchange markets. Annually, those purchases exceed $450 billion or 10 about percent of China’s and GDP 35 percent of its exports.

President Obama has pleaded with China to stop manipulating its currency, but Beijing shrewdly recognizes President Obama lacks the will to meaningfully counter Chinese mercantilism with strong, effective actions; hence, Beijing offers token gestures and cultivates political support among U.S. businesses like Caterpillar who lead in outsourcing jobs to China and profit from Chinese protectionism at the expense of American workers.

President Obama should impose a tax on dollar-yuan conversions in an amount equal to China’s currency market intervention divided by its exports—about 35 percent. That would neutralize China’s currency subsidies that steal U.S. factories and jobs. It is not protectionism; rather, in the face of virulent Chinese currency manipulation and mercantilism, it’s self defense.

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Western Pennsylvania officials, companies join call for currency reform


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The following article by Joe Napsha appeared in the Pittsburgh Tribune-Review here. CPA’s Pennsylvania Chapter Chair, Dave Frengel, is quoted as well.

China’s practice of undervaluing its currency to make its exports cheaper in the United States must be changed for manufacturing to recover from the recession, say Western Pennsylvania officials and companies.

“We want fair trade, not unfair trade. We feel that China has gamed the system to the point that instead of their currency inflating, it continues to go down against the dollar to make their goods cheaper,” said Jeff Pfeifer, CEO of MLP Steel LLC of Scottdale, which makes rods and heavy-duty steel bars at its Laurel Steel and Fayette Steel divisions.

“We continue to see an erosion of our manufacturing base that are our customers, and we’re seeing fewer customers in the U.S.,” said Pfeifer, who has worked in the steel business since 1972.

The Currency Reform for Fair Trade Act of 2010, which is aimed at eliminating currency manipulation by China, was attached this week to a Senate bill to extend tax cuts implemented under President George W. Bush.

By passing the bill, the Commerce Department could slap a levy on imports from countries that the government determines has undervalued their currency against the U.S. dollar by an average of 5 percent over an 18-month period.

“They game the system in every way possible. China is cheating in a variety of ways,” U.S. Rep. Jason Altmire, D-McCandless, told about 55 business representatives this week at an event sponsored by SMC Business Councils, a Churchill organization representing about 5,000 businesses in the state.

Passage of the bill is important to change the direction of America’s trade policy, to globalize trade in a way that is fair to all countries, said David Frengel, government affairs director for Penn United Technologies Inc. of Saver, a precision machining company.

“We sent a signal across the world that we need to have a real conversation on how to do that,” to change the direction of trade policy, Frengel said.

Frengel is a member of the Coalition for a Prosperous America, a nonprofit that has pushed passage of the currency reform legislation in Congress.

House approval of the bill in September has changed the dialogue about trade issues, challenging how China’s currency policy affects trade, he said.

“It sent repercussions throughout the world … the day after it was passed,” Frengel said.

Gilbert Koedel, an advisory board member for Bon Tool Co. of Richland, which makes tools for construction trades, questioned how effective the legislation would be toward reducing trade deficits or boosting manufacturing. Bon Tool has an engineering operation in India and a commercial sourcing office in Shanghai, China.

“It’s a short-term thing. It’s not going to remedy the problem. It going to cost the consumer more with the tariffs because prices will go up,” Koedel said.

Manufacturing in the United States would be better served by reducing its cost structure problem, Koedel said. Costs related to health care, regulations and labor, among others, have more of an impact on American manufacturers competing in the world, he said.

The U.S. Chamber of Commerce does not believe the currency reform bill will achieve the goal of getting China to move rapidly toward a market-determined exchange rate, spokesman David Natonski said.

The chamber joined 35 other trade associations in stating that “this legislation will do more harm than good to job creation and economic growth at a time when we need both dearly.”

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Stand up to China


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The following opinion was written by Dave Frengel, Director of Government Relations for Penn United Technologies Inc., which makes parts for various manufactured products and is based in Cabot, PA. Mr. Frengel also chairs the Pennsylvania Chapter of the Coalition for a Prosperous America.

Domestic manufacturers and others who understand the connection between the loss of manufacturing in America and the faltering and jobless U.S. economic recovery have labored for years to get the federal government to enforce trade rules against China and others who manipulate currency and otherwise rig international competition to cheat America out of its fair share of global markets.

The U.S. House of Representatives in September finally passed The Currency Reform for Fair Trade Act, bipartisan legislation co-authored by Republican Rep. Tim Murphy of Upper St. Clair and Democratic Rep. Tim Ryan of the Youngtown area. The act would allow the United States to levy tariffs on goods exported by countries that have consistently undervalued their currencies.

Small- and medium-size domestic manufacturers partnered with labor and farmers to overcome opposition to the bill from the legion of multinational corporation lobbyists who are running interference for their mercantilist Chinese partners.

The muddled communique coming out of the recent G-20 meeting in South Korea shows that the United States cannot rely on other nations to resolve our currency problems with China. The United States must act.

To reduce unemployment and underemployment to acceptable levels and provide jobs for new workers entering the labor market, the U.S. economy must add nearly 500,000 jobs per month for four years. This will not happen until the United States develops an intelligent strategy for competing against nations that practice predatory trade. House passage of the currency reform act is the first step in that direction.

The currency bill won overwhelming bipartisan support in the House with 348 votes, 249 from Democrats and 99 from Republicans. Every member of the House from Pennsylvania voted for the bill — a proud accomplishment for the Pennsylvania trade reform movement.

There is similar support in the Senate. Both Pennsylvania senators, Democrats Bob Casey and Arlen Specter, have cosponsored a Senate version. Now the challenge is to get it through the lame-duck session and signed into law by the president.

The timing is perfect. The recent election made it perfectly clear to Congress and the White House that American voters know there will be no long-term economic recovery and job creation without taking on unfair Chinese trade. Polls show that a large majority of tea party activists agree.

If the Republican Party had taken a firm trade reform position it would likely have won more seats in the House and a majority in the U.S. Senate. This was demonstrated locally by the narrow margin by which Democratic Rep. Jason Altmire of McCandless, a popular trade reform champion, narrowly held on to his seat.

The threat that the United States will begin to hold cheating nations accountable for violating international free trade rules has provided a powerful lever for the administration to force world leaders to put an end to the unfair trade practices that extend toxic trade imbalances and thwart global economic recovery.

Adding leverage for U.S. negotiators such as Treasury Secretary Timothy Geithner, the Federal Reserve recently announced plans to pump $600 billion into the economy to further stimulate the U.S. recovery. This demonstrates to world leaders that the U.S. is ready to act unilaterally to counter currency manipulators given the ineffective role the G-20 has played to date.

Critics trying to characterize the Fed action as the same as China’s currency manipulation are totally off base. The Fed is taking a legal short-term move aimed at promoting the recovery of our huge trade-deficit crippled economy. Long-term illegal currency market interventions by huge trade-surplus nations like China, aiming to increase the growth of their already rapidly growing economies, are of an entirely different order.

Passage of The Currency Reform for Fair Trade Act by the U.S. House signals a much needed change of direction in U.S. trade policy. The focus of G-20 talks and the recent action of the Fed clearly indicate that even though the bill has yet to pass the Senate and be signed into law it already has changed the global conversation about China and international trade.

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Axis of Depression


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The following by op-ed columnist Paul Krugman appeared in the New York Times here.

What do the government of China, the government of Germany and the Republican Party have in common? They’re all trying to bully the Federal Reserve into calling off its efforts to create jobs. And the motives of all three are highly suspect.

It’s not as if the Fed is doing anything radical. It’s true that the Fed normally conducts monetary policy by buying short-term U.S. government debt, whereas now, under the unhelpful name of “quantitative easing,” it’s buying longer-term debt. (Buying more short-term debt is pointless because the interest rate on that debt is near zero.) But Ben Bernanke, the Fed chairman, had it right when he protested that this is “just monetary policy.” The Fed is trying to reduce interest rates, as it always does when unemployment is high and inflation is low.

And inflation is indeed low. Core inflation — a measure that excludes volatile food and energy prices, and is widely considered a better gauge of underlying trends than the headline number — is running at just 0.6 percent, the lowest level ever recorded. Meanwhile, unemployment is almost 10 percent, and long-term unemployment is worse than it has been since the Great Depression.

So the case for Fed action is overwhelming. In fact, the main concern reasonable people have about the Fed’s plans — a concern that I share — is that they are likely to prove too weak, too ineffective.

But there are reasonable people — and then there’s the China-Germany-G.O.P. axis of depression.

It’s no mystery why China and Germany are on the warpath against the Fed. Both nations are accustomed to running huge trade surpluses. But for some countries to run trade surpluses, others must run trade deficits — and, for years, that has meant us. The Fed’s expansionary policies, however, have the side effect of somewhat weakening the dollar, making U.S. goods more competitive, and paving the way for a smaller U.S. deficit. And the Chinese and Germans don’t want to see that happen.

For the Chinese government, by the way, attacking the Fed has the additional benefit of shifting attention away from its own currency manipulation, which keeps China’s currency artificially weak — precisely the sin China falsely accuses America of committing.

But why are Republicans joining in this attack?

Mr. Bernanke and his colleagues seem stunned to find themselves in the cross hairs. They thought they were acting in the spirit of none other than Milton Friedman, who blamed the Fed for not acting more forcefully during the Great Depression — and who, in 1998, called on the Bank of Japan to “buy government bonds on the open market,” exactly what the Fed is now doing.

Republicans, however, will have none of it, raising objections that range from the odd to the incoherent.

The odd: on Monday, a somewhat strange group of Republican figures — who knew that William Kristol was an expert on monetary policy? — released an open letter to the Fed warning that its policies “risk currency debasement and inflation.” These concerns were echoed in a letter the top four Republicans in Congress sent Mr. Bernanke on Wednesday. Neither letter explained why we should fear inflation when the reality is that inflation keeps hitting record lows.

And about dollar debasement: leaving aside the fact that a weaker dollar actually helps U.S. manufacturing, where were these people during the previous administration? The dollar slid steadily through most of the Bush years, a decline that dwarfs the recent downtick. Why weren’t there similar letters demanding that Alan Greenspan, the Fed chairman at the time, tighten policy?

Meanwhile, the incoherent: Two Republicans, Mike Pence in the House and Bob Corker in the Senate, have called on the Fed to abandon all efforts to achieve full employment and focus solely on price stability. Why? Because unemployment remains so high. No, I don’t understand the logic either.

So what’s really motivating the G.O.P. attack on the Fed? Mr. Bernanke and his colleagues were clearly caught by surprise, but the budget expert Stan Collender predicted it all. Back in August, he warned Mr. Bernanke that “with Republican policy makers seeing economic hardship as the path to election glory,” they would be “opposed to any actions taken by the Federal Reserve that would make the economy better.” In short, their real fear is not that Fed actions will be harmful, it is that they might succeed.

Hence the axis of depression. No doubt some of Mr. Bernanke’s critics are motivated by sincere intellectual conviction, but the core reason for the attack on the Fed is self-interest, pure and simple. China and Germany want America to stay uncompetitive; Republicans want the economy to stay weak as long as there’s a Democrat in the White House.

And if Mr. Bernanke gives in to their bullying, they may all get their wish.

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China manipulates currency, U.S. panel says


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The U.S. – China Economic and Security Review Commission released its Annual Report to Congress and found, once again, that China manipulates its currency and engages in other practices which disadvantage the U.S.  Here is the CNN/Money article by Ben Rooney with links to the statement by the chairs of the Commission, the press release, and the full report.

NEW YORK (CNNMoney.com) — China continues to manipulate its currency and the nation’s “exclusionary” trade policies have contributed to a massive deficit with the United States, a special commission said Wednesday.

According to a draft of its annual report to Congress, the U.S.-China Economic and Security Review Commission said lawmakers should urge the Obama administration to respond to China’s policy of undervaluing its currency and look for ways to overcome trade barriers with the world’s most populous country.

The commission, made up of 12 experts in trade and defense issues, was created in 2000 to provide lawmakers with advice on how to manage America’s economic and military relationship with China.

Critics argue that China’s currency, the yuan is kept artificially low by hoarding reserves, keeping its exports cheap and undercutting international competitors. China has expressed concerns that a stronger currency could hurt its economy and undermine social stability.

The Obama administration should work with its trading partners to pressure China, the report recommended. But U.S. officials should also act independently to “encourage China to help correct global imbalances and to shift its economy to more consumption-driven growth.”

President Obama and Treasury Secretary Tim Geithner have already raised the currency issue with China, most recently at the Group of 20 meeting of global economic powers in South Korea last week.  But the talks have failed to gain traction.

While the G-20 meeting ended with a pledge to avoid “competitive devaluation” of currencies, the leaders postponed more difficult decisions on how to rebalance the global economy.

China announced in June that it would allow its currency to fluctuate in a narrow range according to market forces. But the commission and other critics say the move has been insufficient. The yuan has only appreciated 2.3% so far this year.

The commission also said Congress should look for tools to deal with policies that China uses to block access to its markets that are not covered under World Trade Organization regulations.

Under its “indigenous innovation” policy, China has given its domestic manufactures an advantage and forced U.S. companies to disclose “sensitive technological information” to compete for lucrative government contracts, the report said.

These policies and others have contributed to America’s trade deficit with China of a whopping $1.76 trillion annually, the report said.

“The resultant unbalanced nature of the trade and economic relationship between the United States and China has helped give China the financial resources and new technological capabilities that have enabled it to strengthen and grow its economic, military and political power,” the report read.

The commission also advised Congress to direct the Treasury Department to “fully account” for how much U.S. debt is sold to foreign governments, as well as how much they currently hold.

The report acknowledged that China’s position as the largest holder of U.S. debt “has raised concerns about the degree of influence China has on the U.S. economy.” But the commission downplayed those worries, suggesting that China could hurt its own interests if it stopped lending money to America.

“The lack of alternatives and the potential detrimental impacts on China’s economy make it unlikely that China would stop buying U.S. debt or liquidate its holdings altogether,” the report read.

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Fair Currency Coalition: Is the U.S. manipulating its currency?


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China buys tremendous volumes of dollars each day to keep the dollar high.  The Fed is now printing dollars faster.  China is upset to be forced to buy all these newly printed dollars, shouting “currency manipulation!” to the U.S.

Charlie Blum of IAS Group, and who lobbies for CPA, wrote the piece below for the Fair Currency Coalition which he also coordinates.  He tells us how to think about this issue.

******

APPLES AND ORANGES

How can we hope for any meaningful agreement to rebalance the lop-sided international trade system when heads of state and talking heads, finance ministers and financial gurus condemn deficit countries (i.e. the USA) in terms that ought to be reserved for surplus countries (China in particular)?   One key to success at this week’s G-20 summit – and any future endeavor of this sort – is to recognize the fundamental difference in the significance and legal status of weak or weaker currencies.

On the one hand, some countries – China and others today, Japan for a long time in the past –systematically intervene in foreign exchange markets in a way that produces and perpetuates massive imbalances.  The evidence of such policies lies in the huge excess foreign currency reserves and persistent trade surpluses.  (China acknowledged a monthly surplus with the world of $27.1 billion in October, the second highest level this year.  The result is yet another record level for China’s official reserves.)

Such behavior is inconsistent with IMF Article IV, which obligates members not to manipulate exchange rates in ways that prevent the adjustment of unbalanced trade flows and international payments or produce a competitive advantage.  The logic is clear:  when countries run big surpluses, the exchange rate should be allowed to strengthen so as to reduce the imbalances.   Not to do so is a violation of Article IV and a shortsighted assault on the very international trading system that enabled export-oriented countries to grow so successfully.  China has not done so.

On the other hand, the United States at long last is changing macroeconomic policies in ways that will, if market forces are allowed to work, produce a weaker dollar for a period of time.  At the same time, Americans – individuals and businesses – are deleveraging and substantially increasing their savings.

Banks have greatly strengthened their balance sheets and tightened the undisciplined credit expansion of the last decade.  Interest rates have been held close to zero. Together, those steps should work to reduce the imbalances that burden the international system.   The logic of Article IV also applies: when a country runs persistent trade and current account deficits, its exchange rate should weaken. American policy — which consists of much more than just a weaker dollar — upholds Article IV and reinforces the flexibility of the international system in the face of massive imbalances.

The contrast between China’s perpetual surplus machine and the United States’ self-corrective medicine is as plain as apples and oranges, illegal and legal, destructive and constructive.   Those who cry out in horror that the industrial countries shouldn’t attempt to increase their exports fail to understand how markets work and make a mockery of the system from which export-oriented countries have hugely benefitted.

There is no perfect level for exchange rates, interest rates, money supplies, trade balances or current account balances.  They must be allowed to rise and fall as necessary to maintain the overall stability of the system.   To paraphrase Lord Keynes: “When circumstances change, our policies change.  What do you do?” That’s the essence of Article IV.  Those who insist on their right to run perpetual surpluses or who want to condemn the US to run perpetual deficits need a remedial course in economics. Without a better understanding of this fundamental economic truth, there is little hope for any lasting positive result from the G-20, now or ever.

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U.S.-China Economic and Security Review Commission Annual Report


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FOR IMMEDIATE RELEASE

November 4, 2010

The U.S.-China Economic and Security Review Commission was created by Congress to report on the national security implications of the bilateral trade and economic relationship between the United States and the People’s Republic of China.  For more information, visit www.uscc.gov.

The U.S.-China Economic and Security Review Commission will release its 2010 Report to Congress at a press conference Wednesday, November 17, 2010, at 10:00 am (location to be announced).  The Commission’s Chairman and Vice Chairman will discuss the Commission’s findings and recommendations and answer questions from the press.

Who:           Daniel Slane, Chairman and Carolyn Bartholomew, Vice Chairman

When:             Wednesday, November 17, 2010 — 10:00 to 11:00 am EST

Where:            TBA

Contact:         Jonathan Weston, 202-624-1487, jweston@uscc.gov

Caitlin Campbell, 202-624-1480, ccampbell@uscc.gov

Among the topics in the 316-page Report:

Economics and Trade Issues:

·         China’s ‘indigenous innovation’ policy to promote favored industries and limit imports.
·         China’s currency manipulation and its effects on the United States.
·         China’s purchases of U.S. Treasury securities and the implications for the United States.
·         China’s measures to restrict rare earth element exports.
·         China’s past and future role in the World Trade Organization.

National Defense Issues:
·         China’s growing air and missile capabilities, and the increasing capacity to strike U.S. bases and allies in the region.
·         China’s improving commercial aviation manufacturing capabilities, and the spillover benefits for China’s defense aviation industry.
·         The increasingly sophisticated nature of malicious computer activity associated with China.

Foreign Affairs Issues:
·         China’s increasing political, economic, energy and security interactions with Southeast Asia, and the implications for U.S. interests in the region.
·         Recent developments in the China-Taiwan relationship, and implications for the United States.

Energy and Environmental Issues:
·         China’s efforts to promote green energy in order to increase its energy security, prevent environmental degradation, and develop a globally competitive green energy industry.
·         Ohio’s response to China’s promotion of its alternative energy industries.

Censorship Issues:
·         How China’s revised state secrets laws may conflict with U.S. disclosure requirements and put U.S. investments in Chinese firms at risk.

Reservations are not required. For more information, please visit www.uscc.gov

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