By Robert E. Scott
November 19, 2019 at 5:00 am ET
Here’s a stark number to consider: Nearly two-thirds of America’s workforce — 65.1 percent — do not have a college degree. That’s roughly 100 million Americans, and most of them are currently working in lower-paying service industry jobs.
For years, manufacturing provided good jobs for many of them. But from 1998 to 2016, the United States lost more than 5 million manufacturing jobs. That was a sizable chunk of the nation’s middle class workforce, and it led to millions of Americans subsequently falling down the wage scale.
In 2016, Donald Trump promised to rebuild America’s factories and also fix the nation’s failing infrastructure. It was a message that resonated with many downsized workers — and helped him win the presidency.
Now, as the 2020 election draws closer, and with millions of Americans struggling in low-wage jobs despite historically low unemployment, a question arises: Has Donald Trump really helped U.S. manufacturing?
Clearly, he’s taken action — and imposed tariffs on a broad swath of imports from China. And Beijing has certainly earned the tariffs, after engaging in years of deliberate currency manipulation, dumping and subsidies that led to massive excess capacity in key industrial sectors like steel and aluminum.
But tariffs are best used when targeting specific industries. They provide short-term relief. However, they don’t constitute an effective trade or industrial policy.
A look at federal data shows that the tariffs have helped some affected industries, and U.S. manufacturing employment has climbed by roughly 480,000 jobs since January 2017. But America’s manufacturing sector now appears to be stumbling — and the Institute for Supply Management’s monthly index shows worrying signs of contraction. In fact, there are plenty of warning signs about manufacturing. Federal Reserve data shows declines in both industrial production and capacity utilization. And Census Bureau estimates for new manufacturing orders and shipments of durable goods are also down.
If President Trump has failed to provide meaningful help for U.S. manufacturers, it’s partly because he’s overlooking a larger problem. What’s really hurting America’s manufacturers is that the U.S. dollar has become substantially overvalued. In fact, since 2014, the dollar has risen in value by more than 20 percent, including 8 percent since March 2018 alone — when the China tariffs were first imposed.
An overvalued dollar makes imports extra cheap in the U.S. market. And it makes American-made goods more expensive for overseas consumers. It explains why, even with massive tariffs, the U.S. goods trade deficit continues to climb — and set a new record of $875 billion in 2018. That’s an increase of 28.5 percent since Trump took office. In contrast, the U.S. trade deficit actually declined during President Obama’s second term.
Why is the dollar so overvalued? It stems from years of currency manipulation and massive private foreign capital inflows. Starting in 2015, foreign investors were attracted by the Fed’s premature interest rate hikes. They’ve also been drawn in by Trump’s huge cut in corporate taxes — which has inflated stock prices. All of this has created huge, ongoing demand for the dollars needed to buy up U.S. stocks and bonds. It’s a cycle that keeps propping up America’s investment markets — and sustaining Wall Street, even as it hurts Main Street America.
For all his tariffs, President Trump is overlooking this currency problem. The dollar must be lowered to a more competitive level. But even though President Trump has cited China for currency manipulation, and has commented on the dollar’s rising value, he simply hasn’t taken significant action to realign the U.S. dollar. And surrounded by Wall Street veterans, there’s little reason to believe he’ll do so now.
There’s precedent for fixing the dollar, though. The United States has tackled currency misalignment twice before, and both times were under Republican administrations — with President Nixon acting in 1971, and President Reagan in 1985.
Addressing currency is a bipartisan concern. It’s why Sens. Tammy Baldwin (D-Wis.) and Josh Hawley (R-Mo.) have introduced legislation that would empower the Federal Reserve to tax foreign purchases of U.S. stocks, bonds and other assets. Doing so could slow the influx of foreign capital investment currently driving the dollar to new heights. And that would gradually lower the U.S. dollar to a competitive, trade-balancing level.
Tackling currency misalignment is serious work. But it’s necessary to make America’s factories competitive again. And that should be a priority in order to jumpstart job creation for millions of Americans.
Robert E. Scott is a senior economist with the Economic Policy Institute Policy Center.
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