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“The principal reason for the decline in
manufacturing is that the dollar has risen 30 percent against
other currencies since 1997. That is just like slapping a 30
percent tariff on U.S. exports." -- NAM report
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Federal Issues
Overvalued
dollar costs 400,000 factory jobs
The
National Association of Manufacturers, NCCBI’s Washington
affiliate, released a study last month showing that at least
400,000 factory jobs have been lost because of the
overvaluation of the dollar against other currencies. What the
Wall Street Journal recently called the “rampaging dollar”
has had the practical effect of raising the price tags on
American-made products abroad by about 30 percent since 1997,
the NAM report noted. Against the yen, to cite just one
example, the dollar has risen by 10 percent in only the past
few months, the NAM said.
Faced with such a lopsided playing field, many U.S.
companies have found it increasingly difficult to compete
overseas, a major factor behind the $115 billion plunge in
manufactured goods exports from their most recent peak. “It
is time to stop viewing the dollar as just another financial
commodity and recognize that the value of the dollar has
enormous effects on the real economy – particularly on the
manufacturing sector and its workforce,” NAM President Jerry
Jasinowski said. “The principal reason for the decline in
manufacturing is that the dollar has risen 30 percent against
other currencies since 1997. That is just like slapping a 30
percent tariff on U.S. exports. Imports are also higher than
they would be if the dollar were fairly valued.”
The NAM said the impact of the over-valued dollar has been
particularly acute in industries such as paper, textiles and
automobiles. “Export-sensitive industries comprise only
7 percent of the U.S. workforce,” the NAM report said,
“but have accounted for two-thirds of all the increase in
unemployment in the current recession.
Of the 1.5
million domestic jobs lost over the past year, the
manufacturing sector – which comprises less than 15 percent
of the American workforce -- has accounted for 1.2 million, or
four out of every five. These figures do not include
collateral job losses among service and other industries that
support manufacturers, like restaurants and freight haulers.
Nor do they reflect the impact on the import side.
The U.S.
dollar is currently at a 16-year high, approaching the
same level as it was in the mid-1980s when the Reagan
administration established a precedent by negotiating the
“Plaza Accord” with our major trading partners,
successfully restoring currency stability and return exchange
rates to reasonable levels.
Of course,
other factors are also challenging today’s economy,
particularly slowing economic growth abroad. But a close
examination of the overall situation makes clear that the
dollar is the principal driving force behind the plunge in
U.S. exports.
For
example, U.S. exports to the European Union plummeted by 18
percent over the last year and a half, while European
industrial production declined by only 3 percent. A one
percent drop in European GDP typically reduces imports by two
percent, which would only account for third of the U.S. export
decline. There is no other factor to explain the other
two-thirds of the 18 percent drop than the overvaluation of
the dollar.
Some of these losses will be permanent, as U.S. firms
lose market position and distribution channels to foreign
competitors. Some firms are facing powerful pressure to
circumvent the 30 percent price penalty by simply moving
production overseas – closing factories at home and opening
them in Asia, South America, even Europe. Particularly
troubling is the impact on exports of advanced technology
products – the foundation of future U.S. export growth and
global competitiveness – which have been among the hardest
hit, plunging by 26 percent in less than two years.
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