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Why Both Presidential Candidates are Wrong about China

Trying to find a correlation in jobs and currency "manipulation" is difficult

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Currency Devaluation Does Not Drive Manufacturing Jobs

Against prevailing thought, academia teachings, and economic theory, a declining currency is not correlated with an increase in manufacturing jobs.  This means that having a weaker U.S. dollar and stronger Chinese Yuan does not at all mean manufacturing jobs will necessarily return to America.

The below chart shows the U.S. dollar since 1980 (top half) along with the St. Louis Fed’s U.S. Manufacturing Jobs Data since 1980 (bottom half).  Together they sum up the manufacturing jobs debate quite nicely.

Both candidates are wrong in their assumptions about the U.S. Dollar and manufacturing jobs.  Since the mid 80’s the U.S. Dollar has been in a long-term devaluation.  Based on the candidate’s logic, that would imply manufacturing jobs should be increasing in America.  That simply has not been the case.  Even in the 1980’s through the early 90’s when the Chinese Yuan devalued significantly by 700%, manufacturing jobs actually did not decline in America.

More recently, since 2002 (red shaded boxes), a decline in the U.S. dollar’s value has sped up, yet manufacturing jobs still declined, significantly.  This is directly contrary to what both candidates are saying.

There is very little support that a declining U.S. Dollar amounts to more U.S. manufacturing jobs.  If anything, the analysis shows that a stronger dollar actually may be a better policy for attracting manufacturing jobs.  In the late 90’s the dollar strengthened and so did manufacturing jobs.  More recently since 2009, the dollar also has stabilized and so have manufacturing jobs.

Both Obama and Romney are wrong when it comes to China’s currency manipulation and its role in the loss of manufacturing jobs in America.  They need to look for other reasons besides China’s “currency manipulation” for reasons U.S. manufacturing jobs continue to decline.

Article printed from InvestorPlace Media,

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