Saturday, June 05, 2010

How Currency Manipulation Creates American Jobs

Updated chart based on a previous CD post:

The chart above shows (data here) that more than 53.2% of all U.S. imported goods are: a) industrial supplies (chemicals, commodities, raw materials, etc.), and b) capital goods (machinery, equipment, parts, tools, etc.) which are being purchased by AMERICAN COMPANIES as inputs for production in the United States. Being able to purchase Chinese and other foreign inputs at the lowest possible price makes American companies MORE competitive, sell MORE of their products, and hire MORE American workers. Therefore, to the extent that American companies buy their inputs from China, one could argue that China's currency "manipulation" of appreciating the U.S. dollar helps American companies and actually SAVES and CREATES jobs in America.   

10 Comments:

At 6/05/2010 10:56 AM, Blogger JMG said...

Being that so, one can wonder why then is the US external debt so huge and who is going, sooner or later, to pay it back.

 
At 6/05/2010 11:00 AM, Anonymous gettingrational said...

Hmmm, let's suppose that Exports are promoted to grow GDP and jobs. That would mean that a strong independant currency for China would increase Chinese buying power for U.S. Goods and Services. U.S. Exports have been rising lately and so have Manufacturing jobs. The big sweet spot for increased Exports and resultant job creation is the Chinese market free of currency manipulation.

BTW, a key argument for a strong U.S. dollar is cheaper oil imports. That is also a reason the Chinese like a strong USD because their massive USD reserves buy oil and other commodities -- without having a strong Yuan to weaken China's exports.

 
At 6/05/2010 1:12 PM, Blogger Steve said...

And from the same data, 65.7% of all U.S. Exported Goods are Industrial Supplies & Capital Goods. A strong dollar makes those domestic employers LESS competitive and sell LESS of their products on the international markets, and hire FEWER American workers.

And cede all of that global market share to the artificially-weak currency-manipulating countries - either to their native companies or foreign-based operations of "U.S." international corporations.

Which weakens this country, and U.S. labor, to the gain of international capital. Granted, this probably increases total global GDP growth, both short and long-term, but unrestricted it is cause for chaos in countries losing markets share to the global rise of those emerging markets, which would do fine on their own even without a too-weak currency.

 
At 6/05/2010 3:19 PM, Anonymous Anonymous said...

The overwhelming bulk of the industrial commodities are commodities that are priced in dollars and have a one world price.

Consequently it makes little or no difference to the competitiveness of US industries whether we import those goods or produce them domestically. Moreover, the manufacturer in other countries that uses them as inputs will also pay the same dollar price as the US producer.
Yes, they will convert that into local currency prices to calculate the economics of producing that good that uses those inputs. But they next have to convert the final product price back into dollars to sell them in other markets that compete with US producers.

Given this, I fail to see how your point makes any difference.

Oil is a perfect example. A firm in the US, Germany, China or anywhere faces the same price for oil -- excluding domestic taxes. So how does the fact that we import oil make US firms that use oil as an input --chemical feedstock for example -- more or less competitive against the foreign chemical firm, for example.

 
At 6/06/2010 4:25 PM, Anonymous Craig said...

one can wonder why then is the US external debt so huge and who is going, sooner or later, to pay it back.

Those companies importing capital goods are paying cash on the barrelhead -- you can be assured of it. If it's the foreign debt you're worried about, then complain to your president and your congress-critter.

They created it; not American consumers.

 
At 6/06/2010 4:31 PM, Anonymous Craig said...

Let's see now.

Hmmm. A high dollar makes imports cheaper and exports more expensive. So, American manufacturers pay less for their inputs which would make their products less expensive but that is cancelled out by the dollar exchange rate which makes them more expensive in foreign markets.

On the other hand, a low dollar makes their imported inputs more expensive -- and that, as you might guess, is compensated for by their finished goods costing less abroad.

Do you think maybe we worry too much about this stuff? Left alone, markets do adjust.

 
At 6/06/2010 6:11 PM, Anonymous grant said...

Put Bernie Madoff in charge he wouldd FIX it.

 
At 6/06/2010 6:17 PM, Blogger JMG said...

"... then complain to your president and your congress-critter."
Taking into consideration that I'm not an American citizen, don't live in the States nor have ever lived there, the suggestion is somewhat hard to put to practise. It was a good one, though.
"Left alone, markets do adjust."
They do indeed. But when a government doesn't allow its currency to evaluate (like, say, China's) market is distorted. Everything will be fixed eventually, market forces do have the upper hand in the long run. But in the process a lot of unnecessary pain is taking place.

 
At 6/06/2010 9:02 PM, Anonymous gettingrational said...

Attn Craig, A market for the yuan? There is no market for the yuan. The gov't of China simply dictates that there will be a certain amount of yuan to the dollar. It has been constant for a long time. Maybe you can convince the Chinese to allow a FOREX yuan market?

 
At 6/08/2010 4:08 AM, Anonymous Ian Random said...

Craig, the deficit will never be paid back. Although I think it needs to be paid back and federal borrowing needs to be curtailed to the extent the Fed Res needs for monetary policy. They simple grow the economy, so it is easier to pay the interest. Basically, it is like getting a raise at work and keeping your credit debt growing slower, so your payment is a smaller piece of your paycheck. The question is which party does less rapid harm to capitalism.

 

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