China and Currency Manipulation

China and Currency Manipulation

By exploiting world currency markets, countries like China and Japan effectively subsidize their exports to the United States, and place a tariff on U.S. shipments to them. This manipulation is taking place on a massive scale. By some estimates, China’s yuan is undervalued by as much as 40 percent compared with the U.S. dollar, and eliminating that artifical devaluation would lead to significant employment gains across America.

China’s currency manipulation has contributed to the dramatic increase in the U.S. bilateral trade deficit with China, which now tops $318 billion a year. China has amassed foreign exchange reserves of more than $3.8 trillion, far surpassing any other nation’s reserves.

China’s currency manipulation also attracts foreign investment into China and away from American manufacturing facilities. This flow of investment already has cost Americans billions of dollars in lost wages. When countries adopt artificial exchange rates not based on market forces, they not only exacerbate the U.S. trade imbalance, but they create global trade imbalances. Additionally, currency manipulation results in a sizeable difference in labor costs. This difference creates the illusion of a comparative advantage for a given country. Ultimately, currency manipulation is a subsidy that can put American manufacturers at an unfair disadvantage in the global marketplace.

Ending that subsidy, however, would create millions of jobs in every state.

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