An excellent series. Very informative, and a real call to action. Many thanks.
This said, I found it strange that, in this concluding note of the series, you did not mention the massive role that the overvalued US dollar has played in creating the current situation where the artificially low cost of producing in China made it so attractive to US industries that they have been willing to surrender their intellectual property in exchange for the right to produce there. The overvalued dollar has also made the Chinese exports artificially cheap, leading American consumers — including the US military — to purchase goods from China despite the many risks to America’s economy and national security.
You mentioned CPA research reporting that a 25 percent tariff on all goods from China would create one million jobs in five years, but you said nothing about the CPA research which demonstrated that the US could generate over six million jobs — and close the overall US trade deficit — by implementing the Market Access Charge — the MAC. (https://www.prosperousamerica.org/press_release_new_cpa_study_shows_competitive_us_dollar_could_produce_over_6_million_new_jobs?utm_campaign=190214_pr&utm_medium=email&utm_source=prosperousamerica).
The MAC, which will be implemented when the Baldwin-Hawley Bill is passed, would move the dollar from its current overvaluation of 25-30 percent to a trade-balancing exchange rate that would make it possible for Americans to earn as much producing exports as they spend on imports. This, not a trade war with China, is the best way for America to restore is international competitiveness, independence, and greatness.
John R Hansen commented on Where the 2020 Candidates Stand on Trade and Tariffs 2019-09-26 11:13:25 -0400Very useful note. Thanks as always to the CPA team for keeping us informed on critical issues.
But it is also an exceptionally worrisome note. All of the candidates seem obsessed with tariffs and trade agreements. Only two of the 19 candidates even mentioned currency, and not a single candidate mentioned the dollar’s serious overvaluation! Are they all blind to the main cause of US trade deficits?
As a recent article International Economy (http://www.international-economy.com/TIE_Su19_Koo.pdf) concluded: “No meaningful resolution of the trade
imbalance is possible unless we address the misalignment of exchange rates.”
Given the widespread ignorance among US politicians of the fact that the overvalued dollar is the key reason for our massive trade deficits, getting approval of the Baldwin-Hawley Bill
- which will correct the dollar’s egregious overvaluation by implementing the Market Access Charge (MAC) -will clearly be a challenge. But with continued CPA leadership, it can be done.
Excellent note. Highly relevant, informative and readable. Great response to Goldman. Let’s hope the core messages of your note reach the broadest possible audience.
John R Hansen commented on Bipartisan Agreement to Weaken USD Threatens the Currency Market 2019-07-25 10:37:10 -0400CPA’’s work to change the bloated, noncompetitive dollar that produces trade deficits and lost jobs into a competitive dollar that produces balanced trade and rising prosperity for all Americans is indeed gathering steam. Just look at some of the recent coverage of the overvalued dollar, not only by the American press, but around the world:
The world is finally willing to talk about the urgent need for a mechanism such as the Market Access Charge that, in a gradual, market-friendly manner, will eliminate the US trade deficit.
With the MAC in place, American businesses and workers s would once again be able to earn as much producing exports as they spend on imports.
With the MAC in place, the Government would receive about $100 billion dollars per year of additional revenue — with NO increase in tax rates for Americans, making it possible to expand sharply the infrastructure and other projects needed to generate American jobs, increase American productivity, and to enhance national security.
With a MAC in place, America’s financial sector, which is one of the best in the world, would be freed from wealth-destroying booms and busts that hurt everyone.
With a MAC in place, America would stop adding to the mountains of debt to foreigners that will reduce the quality of life for future generations.
Good for American business. Good for American families. Good for the American Government. Good for American banks. Good for America’s future.
John R. Hansen
John R Hansen commented on Currency wars: Trump and Warren push hard for weaker dollar 2019-07-05 00:02:26 -0400Excellent. Fixing the overvalued dollar is Job #1 for saving America’s future.
John R Hansen commented on US Trade Deficit Leaps to $55.5B in May, But China Deficit Down in 2019 2019-07-04 23:38:46 -0400Jeff,
Excellent article. Detailed, useful analysis.
I agree that making conclusions based on monthly data is risky, but the surge in imports from other countries and the overall increase in the US trade deficit following imposition of tariffs on China is exactly what one would expect — the diversion of trade from China, the lower cost source hit by tariffs, to higher cost sources such as Vietnam.
As I think we all agree, this is exactly why tariffs, designed to adjust the source and composition of imports, must be complemented with exchange-rate measures such as the market access charge (MAC) — the only good way to reduce America’s critically important overall trade deficit, and a measure strongly supported by the CPA.
John R Hansen commented on Michael Stumo on leadership: Build relationships, don’t force personal rigidity 2019-07-04 23:25:16 -0400Well said, Michael. And well done.
John R Hansen commented on Press Release: US Goods Trade Deficit Hits Major New Record in 2018 2019-03-25 23:29:54 -0400Absolutely first rate. Should be required reading for every representative and senator on the Hill, and for every official in the Administration working on any dimension of international trade!
John R Hansen commented on US-Mexico-Canada Deal is a Conceptual Breakthrough But Details Will Be Critical 2018-10-06 23:19:38 -0400Jeff,
Excellent summary. Particularly important is your section on currency misalignment and the market forces that drive the dollar to such high levels that America’s producers cannot compete profitably at home or abroad.
As you note, the current language totally fails to fix this problem. At a minimum the final agreement must not present any barriers to implementing the MAC in the near future. Even better would be language that endorses the MAC immediately.
Ms. Foroohar, as usual, is right on the money when she says, "there is an inherent tension between the goal of national security, and the goal of shareholder value maximization, which has been the defining principle for American firms over the last 40 years. "
One of the best ways to eliminate this tension is to assure that the prices at which corporations purchase their inputs and the prices at which they sell their outputs are consistent with important public goals such as national security.
This consistency has been missing for the past 40-plus years — largely because the overvalued dollar makes imports too attractively cheap and US exports too expensive to compete in global markets. This serious currency misalignment has produced excessive import dependency (including dependence on frenemies and enemies for goods critical to national security), and trade deficits that kill US jobs, close US factories, off-shore critical production capacity, and leave future generations burdened with debt while we live beyond our means, spending more than we produce.
The best way to assure that the prices facing US producers (and other supply chain intermediaries) are consistent with important public goals such as national security is to move the dollar to its trade-balancing equilibrium exchange rate. This is best done by introducing and approving the Competitive Dollar for Jobs and Prosperity Act (CDJPA), legislation that would mandate implementing the Market Access Charge.
The MAC is a simple, market-based mechanism that would, after more than 40 years, eliminate the serious devaluation that has been perhaps the most important cause of the “inherent tension between the goal of national security, and the goal of shareholder value maximization” about which Foroohar so wisely writes.
John R. Hansen
John R Hansen commented on A Trade War the U.S. Is Actually Winning, for Now 2018-05-10 18:48:06 -0400The author basically says that maintaining an overvalued dollar, one that kills off American industry and agriculture to keep the dollar as the world’s premier reserve currency, is “A Trade War the U.S. Is Actually Winning,” No.
Winning the reserve currency war means losing the far more important war — the war to assure America’s prosperity and security.
If being the premier international reserve currency is such an “exorbitant privilege,” why has China been beating American growth rates and trade balances by such large margins for so many years?
Premier reserve currency status is not an “exorbitant privilege.” It is an “exorbitant temptation.” It is a temptation, for example, to borrow from China to pay China to make goods that we could be making for ourselves, creating jobs and prosperity rather than unemployment and debt for ourselves and our children.
Many countries around the world without premier reserve currency status have higher rates of growth, higher shares of manufacturing in total GDP, greater equity of income distribution, large external trade surpluses, and lower external debt burdens than the US.
In short, the “exorbitant privilege” argument is a lie. America should stop obsessing about the dollar’s reserve currency status and start focusing on creating a strongly competitive dollar, one that will make the American economy strong again. This is the road to jobs and prosperity for all.
John R Hansen commented on Opinion: Maybe it’s time to quit negotiating with China 2018-05-10 18:04:43 -0400Peter,
Excellent note. Good summary of the current state of play. Realistic view of the fact that China is not going to roll over and play dead in negotiations. They are proud; they already have what they want (a leg up on US competitors); and they are on a roll to get more.
I’m intrigued by your idea of China-specific import certificates (ICs) — in effect, the Buffett plan writ small. I’ve been very skeptical of the Buffett plan as a general solution to US trade problems — too much bureaucracy; chance for evasion; and the risk that market intermediaries between those that earn and those that buy the certificates would rake off the profits, leaving little incentive to US exporters.
As a China-specific plan, however, it makes more sense for the reasons you mention. Furthermore, it is more market-driven than outright tariffs and contains elements/benefits of quotas while being less rigid and more likely than quotas to benefit exporters rather than those who get import quotas through political influence.
My primary suggestion would be that, since around 50 percent of our trade deficits are with countries other than China, a vital part of any US trade policy going foward must be a mechanism such as the Market Access Charge being promoted by the CPA as a market-driven tool that would allow US authorities to move the dollar to a fully competitive rate. The MAC would balance total/global US trade, thus making the imbalances with China less critical to the health of American manufacturing.
John R Hansen commented on Free-Trade Economists Begin To See the Light on Trade and Globalization 2018-05-10 17:19:34 -0400Jeff,
A first rate piece that neatly bridges the transition between the realities of trade in the 18th century and in the 21st century. The widespread failure to respond with appropriate policies to the sharp differences between then now have inflicted heavy costs on America — as you show so clearly. Your survey of recent literature is most useful — informative and well documented.
Now we face the task of getting national support for CPA’s “smart trade policies” — strategic responses to realities of the present including (a) targeted tariffs to fight trade cheating and (b) the CPA’s Market Access Charge.
The latter is urgently needed to restore the link between exchange rates and balanced trade that existed in the 18th and 19th centuries, but was destroyed by the tsunami of global financialization during the past half-century.
John R Hansen commented on Five Reasons Why the Big 2017 Trade Deficit Affects You 2018-02-08 23:23:36 -0500Excellent, Michael. I hope the message is getting through in Washington — and that the government will stay open for you to talk with our Representatives. The message that Deficits Matter must get out — must become “accepted wisdom.”
John R Hansen commented on The Beltway Squabbles Over America’s Overvalued Dollar 2018-02-08 23:11:52 -0500Jeff,
Excellent piece. Bang on the mark. Hope you can get it published as an op ed in a major newspaper! Also, deserves to go to all members of Congress.
John R. Hansen
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John R Hansen commented on In Praise of William J. Baumol, Economist Who Identified Market Imperfections 2017-05-22 23:08:12 -0400Jeff,
A beautiful note. I wish I had known Baumol personally and not just through his excellent writing. We are following in his footsteps as we address the serious imperfections in global currency markets that have produced over 40 years of U.S. trade deficits, loss of industrial base, unemployment, and international debt, all of which will burden our children.
The Market Access Charge (MAC) is an excellent example of what can be done when you recognize that markets are not always perfect, identify the problems, then design policies that restore consistency between private actions and the public good.
John R Hansen commented on Fix the Trade Deficit or Risk another Financial Crisis 2017-05-11 23:10:32 -0400Excellent note. America must get its trade deficit under control or we will face Buffett’s squanderville. Speaking of Buffett, while understanding his import certificate (IC) plan and sharing his enthusiasm for fixing the US trade deficit, I would be very skeptical of the IC plan for several reasons. For example: How would the American government validate “exporter” eligibility for ICs to avoid corruption? Would ICs go to the factories that produced the exports or to the traders who sell the exports? Would profits that are supposed to go to exporters from their sale of ICs to importers be siphoned off by the traders who would actually match buyers and sellers? How would the IC system, which by Buffett’s own admission is basically a quota system, be scaled to fit the size of the US deficit? And most importantly, the IC plan has no exit strategy — it would have to go on forever.
Especially for the last reason, I favor a variant of Peter’s proposal to tax the conversion of currency into yuan. Instead of limiting this proposal just to currency conversions with China, tax all inflows of debt-generating, asset-shedding borrowing and selling to foreigners that America does in exchange for the money that allows us to live beyond our means. This would moderate the value of the US dollar, making America’s goods and services more competitive in domestic and in foreign markets. This is the way for America to shrink its overall trade deficit. This can easily be accomplished with a Market Access Charge (MAC) on all incoming foreign capital flows.
John R. Hansen
Americans Backing a Competitive Dollar – Now!
John R Hansen commented on Border-Adjustable Taxes, The Dollar and Alternatives 2017-04-24 17:24:08 -0400Jeff and Michael,
First rate article. Well researched. The clearest explanation, and put-down, of the border adjustable tax proposal that I have seen. Furthermore, your proposed solution make very good sense — combine two different BATS: (1) a border adjustable consumption tax and (2) a border adjustable profit tax, then scrap the current business income tax system in favor of a new form of profit tax based on the sales factor apportionment (SFA) system.
Your article has important implications for the Market Access Charge (MAC) that Jeff described in his CPA article of February 14 entitled “Fixing the Bloated Dollar.”
First, although changes in tax systems such as the proposed BAT may temporarily help improve the US trade balance by stimulating exports and constraining imports, exchange rate changes will gradually nullify their impact because the tax changes do little or nothing to change the economy’s basic savings/investment balance. To get lasting improvements in the trade balance, America needs to implement a policy like the MAC that has a direct and lasting impact on the S/I balance. The MAC would do this by keeping the dollar’s exchange rate close to levels consistent with an S/I balance.
Second, the MAC should not be sold as a quick fix for America’s trade deficits. As your quote from William Lee indicates, when exchange rates respond to shocks like new economic policies or circumstances, it typically takes around five years for the adjustment to be completed. In the case of the MAC, the dollar’s value move to a more competitive level in response to the MAC charge on excessive capital inflows during the first part of the adjustment period. During the second part, US importers and exporters, along with their foreign counterparts, would gradually respond to the new price signals generated by a more competitive dollar. During this period, buyers and sellers would run through existing contracts, identify new suppliers for inputs, develop new markets for outputs, and in some cases, create the new production capacity needed to respond to the opportunities generated by a more competitive dollar.
By creating a permanent link between the value of the dollar and balanced trade for America, the MAC would assure that US trade remains reasonably balanced, that growing trade would support the profitability of America’s farms and factories, and millions of well-paying jobs for America’s workers.
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