Making the case against currency manipulators

Posted by mmcmullan on 01/07/2013

As we argue on the regular here at ManufactureThis, other countries' currency manipulation policies severely undercut American manufacturers and all of the jobs they supply.

By buying up and stashing bundles of U.S. dollars, and by pegging their own currencies to the value of ours (see: China), foreign countries are able to keep their own bills cheap -- a  strategy that essentially subsidizes their exports and gives them an unfair leg up over international competitors.

If given a level playing field, we believe that U.S. manufacturers can compete with anyone in the world. And for a while now we've made the case for a strong national manufacturing strategy to stymie these trends.

But we're hardly alone in these sentiments.  A new white paper (summarized here by the Washington Post's Dylan Matthews) from scholars at the Petersen Institute for International Economics is the latest to argue for a much tougher line on international trade cheats.

Fred Bergsten and Joseph Gagnon say that if the most abusive currency manipulators don't cease and desist from boosting their own economies at the expense of our own, the following steps should be taken:

1. The U.S. should buy up an amount of the manipulating country's currency equal to the number of dollars that they've stashed away. That way, the manipulator will see its currency inflate right along with ours.
2. For countries where we can't do that, the U.S. should institute a heavy tax on -- or restrict further purchases of -- other dollars that they choose to amass.
3. The U.S. should start treating manipulation of exchange rates as just another export subsidy -- that way, the U.S. could levy an import duty on goods they want to sell in the American market.
4. Take the worst currency manipulators -- Denmark, China, Switzerland, Taiwan, Hong Kong, South Korea, Malaysia, and Singapore -- to the WTO. And when we win there, use the WTO's authorization to institute even more trade retaliation.

This is tough talk. But there are some tough actors in the international trade arena, and America needs to show it won't continue to roll over for trade cheats. 

Read the Petersen Institute's paper here. And check out Dylan Matthews's write-up here.

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