Manufacturers Alliance for Productivity and Innovation (MAPI) released a report this week, arguing that that within the international financial system, currency manipulation and commensurate mercantilist policies are having a serious adverse impact on U.S. trade and threaten the longstanding dollarized financial system.
In the report, “Twilight of the Dollar With Technology-Intensive Manufacturing at Center Stage, Ernie Preeg, senior advisor for international trade and finance, MAPI, finds that the United States faces a dollar twilight dilemma that will result in a substantial decline in the dollar and the phasing down and out of the dollarized financial system of the past seven decades.
The report presents the dramatic decline in U.S. export competitiveness for manufactures since 2000 and the related huge buildup of official debt to foreign countries.
“The eventual decline of the dollarized financial system has been recognized for more than a decade,” Preeg said. “But at that earlier time there was little sense of urgency for major new policy initiatives. Most noteworthy in retrospect, China was not yet a major trading nation, with U.S. exports of manufactures in 2000 three times larger than Chinese exports.
The global structure of trade had changed greatly over the ensuing 13 years, however, making the twilight zone of the dollar a far more urgent and important policy challenge today.”
Among the principal findings in the report:
- The U.S. share of global exports of manufacturers declined sharply from 19% in 2000 to 12% in 2012, while the EU share was down from 22% to 19%, and the Chinese share soared from 7% to 22%.
- From 2009 to 2012, the trade imbalances of the five largest exporters of manufacturers, who account for two-thirds of global exports, all increased greatly: the Chinese surplus rose by 92% to $866 billion, the EU surplus rose by 110% to $480 billon, the Japanese surplus rose by 32% to $292 billion, and the South Korean surplus rose by 50% to $206 billion. In the opposite direction, the U.S. deficit rose by 61% to $516 billion.
- In the first half of 2013, Chinese exports of high-technology industries grew by $53.5 billion while U.S. exports were up only $4.7 billion.
- Foreign holdings of U.S. official debt quadrupled since 2000 to more than $10 trillion, which means that a 1%t increase in interest paid on this debt raises the current account deficit by $100 billion.
Preeg argues for a comprehensive U.S.-led policy response to the fundamental changes in the trade and financial systems, and of an integrated network of free trade agreements linked to the IMF obligation for market-based exchange rates.
“The U.S. needs bold and forward-looking leadership if there is to be a negotiated twilight path for the dollarized financial system,” Preeg said. “Unfortunately, over the past decade, the United States has been in a state of leaderless policy denial about the mercantilist policies of others while the U.S. technology-intensive manufacturing industry has suffered.”
