China is reportedly planning to revise its currency policy in a move that would increase the value of the Chinese yuan against the dollar and help ease a trade imbalance, which has cost U.S. jobs. The expected move would come amid growing complaints that China has kept the value of its currency artificially low, making it difficult for manufacturers in the United States and other countries to compete with the cheap price of its exports.
Major policy shift
The New York Times, The Washington Post and other news sources report that Beijing is considering allowing the yuan’s value to increase in an effort to quell U.S. criticism that its artificially weak value has given China an unfair advantage in world trade. Some of those reports say the new policy will allow the yuan’s value to increase 3% over the next year. EPI has led the discussion of the growing problem of currency manipulation and last month hosted a panel on the topic and published a paper finding that the United States lost 2.4 million jobs to China between 2001 and 2008. The paper, by senior trade economist Robert Scott, showed that these job losses occurred in every U.S. state and most industries.
Unlike most other major currencies, the Chinese yuan does not fluctuate freely against the dollar. While the value of its currency should have increased as China exported more goods, it has instead stayed low, and China has aggressively acquired dollars to further depress the yuan’s value. During EPI’s March 15 panel on currency manipulation, Nobel Prize-winning economist Paul Krugman said that a change of policy was needed to address an extremely depressed yuan, which was fueling massive trade deficits in the United States and Europe and threatening hopes of an economic recovery.
Responding to these reports that a new currency policy is in the works, Scott said on Friday that a 3% appreciation in the yuan would be a step in the right direction but would not be sufficient, since research has shown China’s currency is undervalued by more than 40%. In 2005, in response to U.S. threats of a tariff on Chinese exports, China revalued its currency by a few percentage points and then allowed it to rise gradually by 20% over the next three years. “A similar move today could help reduce the U.S. trade deficit with China and the rest of the world, and would contribute to a U.S. manufacturing recovery,” Scott said.
Green shoots. Now what?
The Labor Department reported last week that the United States added 162,000 payroll jobs in March, the largest gain in three years. That good news, however, was tempered by the massive jobs hole that remains and the fact that a large portion of the jobs created last month were temporary Census jobs that will disappear later this year.
In her latest analysis of the monthly jobs data, economist Heidi Shierholz stressed that while the trend has turned positive, the jobs crisis remained severe. Some 6.5 million workers have been unemployed for more than six months, and many workers who are not officially unemployed are not working as many hours as they would like. The underemployment rate edged up to 16.9% in March from 16.8% in February.
Today the country still needs about 11 million jobs to return to the pre-recession unemployment level of 5%, Shierholz said. New data on job openings released shortly after the monthly unemployment data show that while the ratio of job seekers to job openings has improved from a peak of more than six-to-one late last year, it still hovers at more than five-to-one, in what EPI President Lawrence Mishel has described as “a cruel game of musical chairs with at least five job seekers circling every job opening.”
A New York Times editorial published on April 7 echoed many of the concerns raised by EPI. The editorial said the jobs situation was “dire,” and needed to be addressed before lawmakers could focus on deficit reduction. “Make no mistake, the deficit is a serious problem that must be addressed in the medium term,” the Times stated. “The economy needs to be bolstered now.”
EPI in the News
Heidi Shierholz was widely quoted in stories about the latest jobs data in stories in Reuters, New York Magazine and other media outlets. The Chicago Sun-Times featured EPI’s research on the problem of long-term unemployment in a piece about the growing number of workers who have been unemployed for more than a year. Marketwatch cited EPI’s recent research on the high rate of unemployment among young workers in a story about the growing number of young people who are living with their parents rather than starting a household of their own.