Jake's View

I’m sorry Mr Trump, China’s currency isn’t the reason its share of global exports has risen so much

Factors other than the value of China’s currency explain the decline of manufacturing in the US and other developed nations since the early 1980s

PUBLISHED : Monday, 11 July, 2016, 9:55am
UPDATED : Monday, 19 September, 2016, 3:08pm

Trump said that if he were elected president, he would “instruct my Treasury secretary to label China a currency manipulator”.

SCMP, June 30

I sometimes think Donald Trump is a good bit like our own developers here. His heart is in the right place but he has a way of talking about things he does not understand and then people laugh.

Look at the first chart to see where Donald has it right. Manufacturing jobs in the United States were at their most numerous in mid-1981. Since then they have declined by 37 per cent and that trend has accelerated. This is over a period when total non-farm employment in the US rose by 57 per cent.

And what has taken the place of these manufacturing jobs? My chart calls it burger flippers. You may call it retail, leisure and hospitality work.

These are not nine to five jobs with a reasonable degree of security and reasonable pay, jobs that allow the holders to support a larger household. We are talking of a high proportion of low-paid temporary and part-time jobs with no security.

I have coloured this line Republican red. These are the Donald Trump supporters who are set to give him the Republican Party nomination this month. They are supposed to live in one of the world’s wealthiest countries and yet they can often no longer make ends meet. They are angry, they have a legitimate complaint and they have found a voice that speaks for them.

Unfortunately this voice bellows at the wrong target. Beijing can manipulate the yuan all it wants, and it does, but the currency in which China’s export industries are denominated is the US dollar.

I don’t know what the effective proportion of yuan costs is in China’s exports but I doubt it is much more than 10 per cent. The rest is all US dollar for required imports, even for goods not imported from the US, or it is determined by US dollar pricing of commodities such as oil and iron ore.

Between 2005 and 2014, the yuan strengthened by 27 per cent against the US dollar, which is quite a substantial change and should have crimped China’s export strength if that strength was yuan based. Yet China’s exports more than tripled over this period. It made no discernible difference at all.

Manufacturing jobs have migrated from the First World to the Third World over the last 40 years because of enormous improvements in technology transfer, industrial and trade finance, shipping costs and international communications. It has little to with local currency movements.

But Donald is right to blame the travails of the burger flippers on a currency manipulator. It is his own country’s big manipulator, Janet Yellen, chief of the US Federal Reserve Board. The previous two incumbents of the job are also to blame but she is there now and she has not changed their ways.

For the last eight years the Fed has maintained a zero interest rate policy in a vain attempt to stimulate economic growth. All this has done, however, is stimulate speculative activity in financial markets, plunge households deep in debt and widen income polarity.

It has not brought about industrial revival or a recovery in decent jobs. It cannot. When you destroy the price of money you destroy the ability of your economy to discern between good and bad investment.

I don’t have much hope that Donald Trump will ever take this on board. His heart is in the right place but his mouth is once again in the wrong one. He has the right constituency and the right complaint but the wrong culprit and the wrong remedy. I’m sorry for the burger flippers.