In a report issued on June 17 -- the one-year anniversary of China's announcement that it would adopt a more "flexible" exchange rate -- the Economic Policy Institute (EPI) said that if the yuan and satellite currencies, such as Hong Kong, Taiwan, Singapore and Malaysia, were revalued to their equilibrium levels, U.S. gross domestic product would increase as much as $285.7 billion (1.9%).
Such a move would create up to 2.25 million U.S. jobs, the EPI asserts.
"It's in the interest of both the United States and China to let the yuan appreciate," said EPI's Robert Scott, author of the report. "From the U.S. point of view, it would mean increased GDP, more jobs, lower unemployment and deficit reduction. For China it will lower inflation, raise the purchasing power of Chinese workers, and help rebalance their economy. Chinese revaluation is a win-win scenario for the global economy."
A low yuan contributes to China's trade surpluses with Western nations, particularly the United States, the group explains.
The report states that economic research shows that China needs to increase the value of its currency by 25% to 30% against the U.S. dollar.
If China and other satellite currencies were to revalue the yuan to its equilibrium level, not only would it increase U.S. GDP, it also would reduce the U.S. budget deficit by up to $71.4 billion per year. It would take 18 to 24 months to achieve these full benefits.
"A year has passed since China made a phony pledge to let the yuan appreciate," said Scott Paul, executive director of the Alliance for American Manufacturing. "If the administration will not get tough and demand that China play by the rules, Congress will have no option but to pass tough bipartisan legislation to counter the artificial and unfair advantage that China enjoys on trade. Doing so would be a deficit-reducing, job-creating, no-cost stimulus that is desperately needed."
Key findings of this report include:
- A full revaluation by China alone would reduce the U.S. current account deficit (the broadest measure of the U.S. trade deficit) by $138 billion; if other Asian countries also revalued, then the U.S. current account would improve by $190.5 billion.
- If only China revalued by 28.5%, the growth in U.S. GDP would support 1.6 million U.S. jobs. If other Asian countries also revalued, then 2.25 million jobs would be created, enough jobs to increase total U.S. employment by 1.6% (over the level in May 2011.)
- Over 10 years, if sustained, full revaluation by China and other Asian currency manipulators could reduce the cumulative U.S. budget deficit by up to $621 to $857 billion. These savings could be achieved at no cost to the U.S. government.
- Revaluation by China is one of the only deficit-cutting tools available that will stimulate economic growth and job creation; other proposals for deficit reduction involving spending cuts or tax increases will reduce domestic growth and employment.
- The inflation rate in China reached 5.5% in May 2011; food and oil prices, which make up a larger share of budgets in China than in the United States, have been rising at double digit rates. Full revaluation by China and other Asian countries could lower inflationary pressures and boost real wages, reducing the threat of future asset bubbles and cooling these overheated economies. It would also rebalance growth in the global economy, helping to restore demand in the United States, Europe, and other countries where growth has slowed dramatically in the past year.
To read the full report, "Benefits of Revaluation," click here.