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Home Publications Blogs Beat the Press NPR Talks About Manufacturing's Prospects Without Mentioning Tariff on U.S. Exports

NPR Talks About Manufacturing's Prospects Without Mentioning Tariff on U.S. Exports

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Friday, 24 June 2011 04:44

Actually, what NPR did not mention was the value of the dollar, however an over-valued dollar has the same effect on U.S. exports as a tax on exports. In other words, if the dollar is 15 percent over-valued, this is equivalent to imposing a 15 percent tax on all the goods exported from the country, since it makes our goods roughly 15 percent more expensive to people living in other countries. Similarly, if the dollar is over-valued by 15 percent then it is equivalent to subsidizing imports by 15 percent.

When the United States has imposed tariffs of this magnitude on imports, for example President Bush's temporary tax on imported steel in 2001, it has received a huge amount of attention from the media. It is therefore remarkable that a piece devoted to the prospects of manufacturing never mentions the dollar and the likelihood that it is substantially over-valued.

This piece also points to productivity growth as one of the main factors contributing to the reduction in the share of employment in manufacturing. It is important to realize that productivity growth in manufacturing would only lead to a reduced employment share insofar as it has exceeded the rate of productivity growth elsewhere in the economy.

This has in fact been the case. But the gap between productivity growth in manufacturing and the rest of the economy would explain a much smaller drop in the manufacturing share of total employment than the absolute level of productivity growth. Much more of the drop in the manufacturing share of employment is attributable to import competition and the trade deficit. If the U.S. had balanced trade, it would increase manufacturing employment by more than 40 percent, creating more than 4 million new jobs in manufacturing.

Comments (8)Add Comment
Produce More, Lose More
written by izzatzo, June 24, 2011 6:07
It is important to realize that productivity growth in manufacturing would only lead to a reduced employment share insofar as it has exceeded the rate of productivity growth elsewhere in the economy.


Exactly. When the output per unit of labor input increases across all sectors under zero sum unitary price elasticity then total units of labor input necessary to produce the output move together across all sectors.

This guarantees that income losses and layoffs from high trade deficits that more than offset domestic productivity increases by redirecting the gains to multinational corporations are not discriminatory.
But, But
written by paul, June 24, 2011 9:06
we need a strong dollar, Robert Rubin and Larry Summers told me so.
...
written by jamzo, June 24, 2011 10:28
i don't hear any voices clamoring for "balanced trade" or "weaker dollar"
Strong Dollar
written by Jeff Z, June 24, 2011 9:32
Because it is psychological. A strong dollar enables some people to feel good about the country (GO USA! GO USA!) regardless of consequences for the rest of us. They are willing to sacrifice lives and blood on the altar of national prestige.

By 'they' I mean Larry Summers, Robert Rubin, and their compatriots.
Strong/weak compared to what?
written by Melissa, June 25, 2011 7:22
From where I'm sitting, in Canada, the US dollar is plenty weak - we're at par now, and Canadian economists say that according to the "fundamentals" the Canadian dollar should be about .87 of the US dollar. This weak US dollar is hurting Canadian exports to the US, and killing our US-originating tourism industry (very important to Atlantic Canada) as it's too expensive for Americans to come here on vacation. I've always found the forex market very confusing because I don't understand how currencies can go up and down against each other bilaterally without resulting in bizarre anomalies when viewed multi-way (A>B, B>C, but C>A) because of the nations' respective "fundamentals".
...
written by Jim Forrester, June 25, 2011 8:29
Hi Dean--

Global corporations are far more profitable manufacturing in dictatorships like China than they are here, even with our weak unions. It's one thing to lose your job for organizing and another to get shot. The strong dollar makes them even more profitable. Now that the Supreme Court allows them to hide campaign contributions, I don't see our politicians allowing the "strong dollar tariff" to expire.

Thanks,

Jim Forrester
Do you know how to say "mixed blessing" at all?
written by Bill H, June 25, 2011 9:45
The weaker dollar helps our exports and, as you point out, increases the effective cost of imports. In so doing it both helps and hurts the economy. To determine the net effect we have to ask whether we export more or import more. I don't actually have statistics on that, but since we have a huge trade deficit, I suspect the answer would be that we import more than we export and that a weaker dollar is seriously harmful because the value added to our exports is greatly outweighed by the cost added to our imports, especially oil.
Weak dollar/strong dollar/ good cop/bad cop
written by Mike Ballard, June 28, 2011 8:17
From a worker's point of view, a strong dollar means a larger Social Security check and the ability to stretch flattened real wages into European tourist traps and other doo-dads in the market place. "Bang for the buck", it used to be called--getting more bang for your buck.

From a capitalist point of view a weak dollar allows the export capitalist to undercut a competitor from another country. Real wages haven't really gone up in the USA from their mid-60s levels. Productivity from the employment of wage labour has increased by leaps and bounds since then. So have profits. Productivity increases also make a lot of things for sale at lower prices. Market share can grow even more aggressively with a weaker dollar.

However, workers who bet on the bubble (now pricked) and who now suffer austerity measures being demanded by debt holders from their elected office holders, these workers need a raise in pay and all they get are layoffs and foreclosures. Meanwhile, the BIG people who want to recoup their GFC losses (in more or less 2006 dollars), they seem to be in tight control of the government.

Well the upshot is that these workers are less and less able purchase things for sale from China and China is the lynchpin for recovering and re-starting the world wealth machine and Chinese rulers depend on getting their stuff sold in American and European markets where the spectre of 'insufficient demand' hangs over the faces in the market. Exporting all those fixed capital enterprises to cheap labour outsourcing dictatorships did nothing for the value of the dollar.

More and more the future looks like Detroit. Perhaps capital will start moving back to the USA now that the workers are paid the same amount of currency with half the buying power. The Spectre of 'insufficient demand' haunts those looking for markets in countries with a weak currency and no effective union power.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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