MAPI: U.S. Must Stop Manufacturing Trade Imbalance

Manufacturers Alliance/MAPI says U.S. must address currency misalignment soon in order to contain the rising trade deficit and stop the loss of manufacturing jobs.

ARLINGTON, Va. -- In the third quarter of 2009, the U.S. trade deficit in manufactured goods increased sharply, as did the Chinese trade surplus, an imbalance that conflicts with the Group of Twenty "Framework for Strong, Balanced and Sustainable Growth," according to the Manufacturers Alliance/MAPI.

MAPI Senior Fellow in Trade and Productivity Ernest H. Preeg says the U.S. global trade deficit in manufacturing rose 34 percent from $67.9 billion in the second quarter 2009 to $91 billion in third quarter. The Chinese global surplus rose 27 percent from $87.7 billion in the second quarter to $106.5 billion in the third quarter. Nearly half of the increase in the U.S. deficit was attributable to China.

During the first half of 2009, the U.S. deficit was down 36 percent, and the Chinese surplus was down 24 percent due to the global recession.

"Now that the economic recovery is under way, however, and despite all the official talk from the G-20 about 'balanced growth,' the trade imbalance in manufacturing is surging again, with the United States and China at center stage," Preeg said. "If the resurgent trade imbalance continues at a similar pace in the next two quarter, a major confrontation over economic recovery strategy will likely take place at the next G-20 summit in Canada in the spring of 2010, if not sooner. In addition, the prospect for a continued surge in the trade imbalance for manufacturers is highly likely unless more forceful policy actions are taken."

At the Sept. 2009 G-20 summit, the U.S. urged trade surplus countries to pursue economic recovery strategies based on expanding domestic demand instead of export-led growth. The U.S. recovery would be more export-driven than consumption-oriented.

Preeg asks to U.S. and G-20 to review and revise policy framework, noting that "the issue of currency misalignment, centered on the undervalued yuan, needs urgent attention."

“The continued abdication of the International Monetary Fund to address currency misalignment,” he concludes, “will soon present the United States with the choice of taking some form of alternative strong action to contain the rising trade deficit and consequent loss of manufacturing jobs, in particular, or of facing sharply rising domestic political pressure to go the protectionist route.”

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