We’re five years past the onset of the Great Recession. Right now, the stock market is booming, and unemployment has inched down to its lowest level since the crisis began.
So why, despite gaudy Dow Jones data and assurances that an 8.4 percent jobless rate in Indiana isn’t a real concern, does this economic recovery feel like such a drag?
Here’s a big reason: America is getting beaten badly in the trade arena. In 2012, the U.S. bought roughly half a trillion dollars more than we sold to our international competition. Our trade deficit with China alone ran $315 billion last year.
That’s a big, loud number, and there are plenty of ways you can put it in context. You could say that $315 billion is more than the combined revenue of General Motors and General Electric during that same year, or that it’s larger than the GDP of Denmark. Or you could simply observe that it’s a heck of a lot of money that’s disappearing into Beijing’s bank accounts.
But don’t believe for a second that our China trade deficit is the result of a free market at work.
Since we granted normalized trade relations to Beijing over a decade ago, we’ve traded production capacity, and about 2.7 million middle-class jobs (including more than 56,000 in Indiana) to China in order to live high on the consumption hog.
Beijing fuels this trade gap through persistent market interventions. The Chinese government subsidizes competitive industries; forces American companies to transfer intellectual property when accessing the Chinese market; ignores widespread counterfeiting; and, sponsors cyber-espionage against U.S. targets while stealing everything from Coca-Cola trade secrets to Pentagon missile-defense plans.
But ultimately, no single subterfuge does as much sustained damage to the American economy as Beijing’s policy of currency manipulation.
China holds massive reserves of American dollars. By hoarding cash, Beijing actively works to inflate the value of the dollar while artificially lowering the value of its own currency, the yuan. Doing so acts as a hidden tax on American goods entering the Chinese market and a subsidy for Chinese goods entering our home market.
This isn’t just an economic theory: By distorting the market with its rigged currency, China has exponentially expanded its wealth – and American companies and workers pay the price. It’s past time our leaders acted to stop it.
A bill currently making its way in the U.S. House of Representatives does just that. The Currency Reform for Fair Trade Act (HR 1276) would allow businesses to file trade cases based on injury from China’s currency manipulation.
Passing it would produce immediate results because even the hint of action on currency manipulation causes shudders in the Chinese politburo.
A Senate procedural vote in 2005 (that marked the first step toward addressing Beijing’s currency manipulation) provoked an immediate rise in the yuan. And when Treasury Secretary Timothy Geithner threatened action ahead of a G-20 meeting in 2010, the yuan rose.
It rose again during House and Senate votes on currency legislation in 2010 and 2011. And when President Barack Obama and Mitt Romney promised to counter harmful Chinese trade practices during the 2012 campaign, the yuan budged.
But when we ease off the gas, the yuan’s pace of appreciation decelerates. And without pressure, nothing will change. That means something in Indiana, with its heavy concentration of manufacturing jobs and an already high unemployment rate.
Polling shows that an overwhelming majority of Americans favor standing up to currency manipulators like China, and Hoosiers should watch their congressional representatives to see whether they’ll side with the state’s manufacturers. Or will they stand with our competitors who continue to game the trading system?
How will they vote? It’s not clear, but this is: Currency manipulation is an assault on free market principles, and Congress must act to stop it.