Coalition urges dollar devaluation to regain jobs in U.S.

Coalition Urges Government
to Lower Dollar Value

By Kylene Kiang
Cox News Service
via The Western Star, Lebanon, Ohio
Thursday, July 13, 2006

http://www.western-star.com/school/content/shared/news/stories/TRADE_DEF...

WASHINGTON -- Academic, business, and labor groups called on the Bush administration Wednesday to lower the value of the dollar in order to alleviate the country's ballooning trade deficit and its adverse effects on American industry.

"These free-trade agreements are really outsourcing agreements that got us into this mess in the first place," Kevin Kearns, president of the U.S. Business and Industry Council, said of the proposed revision of U.S. trade policy.

The U.S. trade deficit in goods and services rose by more than $100 billion last year to $725 billion, or about $2 billion per day. The latest U.S. trade figures released by the Commerce Department on Wednesday showed a $63.8 billion deficit in May -- a 0.8 percent increase compared to April's deficit of $63.3 billion. The findings represent the sixth largest deficit in history.

Richard Trumka, secretary-treasurer of the AFL-CIO, said that eventually Americans must either produce more of what we consume or be forced to consume less.

"Unless there is a change in direction, the threat of a steep global economic downturn is real."

Lowering the value of the dollar would, in theory, lower the price of American goods abroad and increase imports. Those who argue against devaluation say that higher interest rates and inflation would result.

"We've done it before, and there was much success lowering the dollar in the 1980s under (former Secretary of the Treasury) James Baker. As a result, we saw exports soar," said Robert Scott, a senior economist with the Economic Policy Institute.

Members of the panel said the nation's burgeoning trade deficits are the result of unfair trade practices in countries including China and an erosion of the U.S. manufacturing base, in addition to the overvaluation of the dollar.

According to the AFL-CIO, the manufacturing industry is by far the largest sector affected by trade. Since President Bush took office, 2.9 manufacturing jobs have been lost and more than 40,000 factories have been closed as a result of the trade imbalance.

"If we do not demand a dramatic change in U.S. policies now, we will wake up one day in the not-too-distant future and find that our only comparative advantage is in shopping and debt," Trumka said.

Another possibility discussed was the enacting of a temporary, across-the-board import surcharge as defined by article 12 of the World Trade Organization.

"It's long past time to consider doing things differently," Trumka said.

Devaluation of the dollar would bring only a one-time impact in inflation, said University of Maryland professor and economist Peter Morici. He estimated a half percent to a 1 percent increase in prices. "And that would be well worth it to end all this borrowing."

Morici said the most significant thing that could happen to decrease the trade deficit would be if China increased the value of its currency.

The low yuan has, however, benefited American consumers, said Morici. "We might be seeing lower prices at Wal-Mart, but that's all on the backs of Chinese workers, most of whom have a very low standard of living."

The coalition of labor and business leaders highlighted the trade deficit between the United States and China, which grew to $202 billion in 2005 -- the largest bilateral deficit in history. They noted that in addition to keeping the value of the Yuan artificially low, the Chinese government has a track record of oppressive labor policies, disregard for intellectual property rights, and the dumping and counterfeiting of manufactured goods.

U.S. Rep. Sherrod Brown, D-Ohio, who attended the meeting for closing remarks, called China the "gun at the head of every labor official negotiating for wages."

Congress also needs to set global standards for labor conditions to protect and improve the worldwide standard of living, Brown said. "You can go to Malaysia, to a Motorola plant, and the workers there can't afford to buy the cell phones they make."

"The good news is that the Bush administration's trade agenda is in tatters," said Brown in reference to the Central American Free Trade Agreement and Oman Free Trade Agreement, which is under scrutiny in Congress.

"It really amazes me, after all these years in the trade debate, that people in Washington have drunk so much of the free-trade Kool-Aid that they still to this day don't see the crisis in trade policy that has unfolded in front of them."