Trade Deficit Improves...Or Does It?...
Posted by scapozzola on 12/18/2007
According to the latest figures from the Commerce Department, the U.S. trade deficit fell slightly in the third quarter of 2007, to its lowest level since the first quarter of 2004. This decline is easily attributed to a weakening dollar, which has benefited U.S. exporters and reduced the trade deficit. Curiously, though, this boon for U.S. manufacturers has been limited to trade with Canada and the Euro-zone countries. While the overall trade deficit has fallen with them, it has instead risen sharply with China. Rob Scott of the Economic Policy Institute (EPI) noted this strange occurrence today in an interesting article, pointing out that “the dollar has lost only 9% against the Chinese yuan since 2002, and…has actually risen slightly in value against the Japanese yen.” As he explains it, “these countries intervene heavily in currency markets to prevent the dollar from falling against their currencies, boosting their competitiveness against U.S.-based production.” Thus, thanks to a rigged currency system, the yuan, like the currencies of other Asian central banks, has remained tied to the dollar and essentially stayed in place. This currency intervention has been a key force in driving China’s manufacturing juggernaut. And, as EPI noted in a report earlier this year, the consequences have been dramatic. Since 2001, the U.S. has lost 1.8 million jobs specifically due to unbalanced trade with China. That 1.8 million lost jobs statistic has become a well-bandied figure of late, with presidential candidates like Hillary Clinton lamenting it at various debates. The question then is which, if any, presidential candidates would actually take strong action to correct the situation. Until they do, the U.S. trade deficit will continue to rise.
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