A Lower Dollar Would Ease the Pressure of the Unbalanced Trade Deficit

A new report released today by the Center for Economic and Policy Research (CEPR) demonstrates that a reduction of the value of the dollar would not only correct the large trade deficit in the United States, but would also lead to a boom in the manufacturing sector, potentially creating millions of jobs.

"Any serious discussion of U.S. competitiveness has to begin with the value of the dollar," said Dean Baker, author of the report and a co-director at CEPR. "This is the single most important factor on determining the relative cost of U.S. goods against goods produced elsewhere."

"The Necessity of a Lower Dollar and the Route There" begins by making a simple economic point: a large trade deficit means that a country must either have a large budget deficit, negative private savings, or some combination of the two. As neither of these are considered desirable, a lower trade deficit should be a top policy concern. And a lower-valued dollar is the only plausible mechanism for balancing the trade deficit. The author then shows what sectors of the economy would expand under a scenario in which the United States had a lower trade deficit. Finally, the report highlights ways to lower the dollar.

"A common assertion is that the United States cannot really affect the value of the dollar," Baker continued. "However, the main obstacles keeping the U.S. government lowering the dollar are in fact, policy-based."

Nevertheless, the reduction of the value of the dollar should be a top concern for those looking for sources of job growth in the years ahead. A lower dollar could lead to an increase in output by the U.S. manufacturing sector of more than 40 percent, resulting in the creation of over 5 million jobs.