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Report Blames Monetary Policy, Not Wages, For Trade Deficit, Job Losses

A new report from a think tank blames currency manipulation and unfair trade practices for the loss of millions of U.S. manufacturing jobs in recent decades.

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A new report from a liberal-leaning think tank blames currency manipulation and unfair trade practices for the loss of millions of U.S. manufacturing jobs in recent decades.

The analysis from the Economic Policy Institute attributed the continued strength of Chinese and German exports compared to the U.S. to monetary policy.

Robert E. Scott, the group's trade and manufacturing research director, alleged that China manipulated its currency, enacted improper subsidies and conducted cyber espionage as its share of the manufacturing export market quadrupled between 1997 and 2013.

Although Chinese labor costs increased sharply in recent years, analysts often attributed the rise in the country’s manufacturing sector to relatively low wages. The EPI report, however, noted that other low-wage countries such as India did not experience similar levels of growth.

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Germany, meanwhile, largely maintained its export market share despite manufacturing wages that were higher than those in the U.S.

Scott blamed the faulty structure of the European Union for helping to keep Germany's currency artificially low.

"These countries effectively engaged in 'beggar thy neighbor' trade policies that exported unemployment to trade partners, and supported employment in their own countries, especially in manufacturing industries," Scott wrote.

The U.S., meanwhile, "lost nearly one-third of manufacturing jobs in the past 15 years" amid "its tolerance of China’s unfair trade policies and in its failure to provide a supportive environment for manufacturing."

The report said that U.S. policymakers should focus on fighting currency manipulation, increasing investment in research and job training and borrowing strategies from European management models.

Scott argued that domestic manufacturing losses could be reversed without focusing on wages and called manufacturing's push into lower-wage, right-to-work states — largely in the South — "a race-to-the-bottom strategy that should be rejected."

The report comes amid calls for greater attention to currency policy in the Trans-Pacific Partnership, a pending trade agreement between the U.S. and 11 other Pacific Rim nations — excluding China.

The nation's existing trade gap with China accelerated this year as the strong dollar made American goods more expensive while the Chinese economy showed signs of weakness.

“American factory workers are the solution, not the problem,” Alliance for American Manufacturing President Scott Paul said in response to the EPI report. “Instead of scapegoats, America needs a manufacturing strategy."

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