By：Rod P. Kapunan
The US wanted to cheat the world by amending the basic law on economics, particularly on the exchange value of commodity. That desire was not only intended to dominate other countries but to control them through currency dominance.
Unlike the previous empires where states physically subjugate others in a system called colonialism and later involving to imperialism, the US has devised a way to exploit countries without them thinking how they have been entrapped into a new phase of exploitation. The practice is done by overvaluing the currency called revaluation or undervaluing it called devaluation; by pegging its value to precious metals or by printing money beyond the need of the market called quantitative easing to make available credit and lower interest rate.
The US took the position of overvaluing the dollar, it being untouched by the ravages of World War II. The US emerged as the leading manufacturer, and has tremendous capital and trade surplus while the rest seeking credit to buoy their economy.
To maintain the value of the dollar, the US urged other countries to participate and sign the Britton Woods Agreement in 1946 where it fixed the value of the dollar at $32 per ounce of gold.
That allowed the US to carry out its war efforts during the Cold War. It fought in the Korean War in 1950’s and again in Vietnam only to end up in humiliating defeat in 1973. The US was incurring for huge budget deficit that it has to find a way to relieve itself of the festering problem.
To overcome this looming economic catastrophe that could reduce the status of the US as an economic superpower, President Nixon announced in 1973 to decouple the US dollar from the gold standard. This means the US would no longer bind itself to the Britton Woods Agreement. The decoupling measured the value of the US dollar to its GDP which countries grudgingly accepted. This resulted in the spike in its value.
Nixon’s economic theory assumes that by allowing the US dollar to float and dominate, the US would be able to regain its status as an economic powerhouse. The theory is based on the belief that one can buy more beyond the real value of his money worth while the seller earning less than the cost for his labour/capital. It was a genie for aside from raking in from low wages, the seller could earn more by cheating the buyer the real value of the commodity.
Unknown to many, an overvalued dollar is to literally cheat countries of their exports and capital investments. The valuation of the dollar to GDP plummeted the world’s currencies.
Underdeveloped countries suffered unprecedented trade deficit. Many were forced to abrogate their anti usury law because international creditors, principally the World Bank and the IMF, insist that they be paid based on the current value of the dollar which was higher than the fixed interest rate imposed by their anti-usury law.
Even government loan for public service have to pay the current value of the dollar known as the currency exchange rate adjustment system (CERA). Countries sought moratorium and had to restructure their debt.
Countries paying an overvalued currency increased the volume of their exports but actually at a lesser price. The same can be said of their imports, which mean they pay more which is usually higher than the international market price. Often the valuation of their currency is automatic as it is carried out by the World Bank.
The problem with an overvalued currency is it only presents one side of the coin. US failed to anticipate that the high value of the dollar would equally affect them in terms of high wages and services. People tend to buy more if it will cost them less, and that could lead to deficit spending.
The US had to adjust to the current cost of living which has nothing to do with production or wealth creation. Slowly manufacturing declined for being uncompetitive in the world market. Their being dependent on imports resulted in huge trade deficit because it became easy for US consumers to import. Even the production of peanut butter was consigned to China.
If history serves them right, it was the US that forced Japan to revalue the yen to make US products competitive but resulting in an economic doldrums in that country for more than 10 years.
Up to now the Americans refuse to accept that the cause of the deficit is their overvalued dollar, and that problem is being taken advantage by American importers to cash in on that opportunity to buy the lowest price. The US refuse to adjust the value of the dollar to reflect its real cost for fear of disrupting the indirect subsidy to American consumers many of whom are reeling from acute unemployment.
Another, an overvalued dollar tends to diminish employment because of higher production cost. The practice boomeranged to affect the cost of domestic wage and services. This explains why American workers have been complaining of no real wage increase since 1973.
Whatever wage increase was given was brought about by the statutory minimum wage law and triggered by inflation. Economist refers to this as stagflation. To be precise, stagflation is the beginning of de-industrialization because industries are being dismantled and established elsewhere where the value of the currency is cheaper.
To counter this, employers have to resort to outsourcing of work to other countries where labour is cheap or by the practice of contractualization to cut short the workers’ security of tenure to deny them the benefits of regular employees. Most serious is the untimely withering of trade unionism in the US.
The US experiment of outsourcing production to China coincided with the economic opening of that country in 1978. It was a step by step process that China did to industrialize. In less than 30 years, China today stands as the biggest economy in the world. UN data for 2018, China accounts to 13.45 percent of the world’s exports while 11.37 percent of its imports making it the top trader of the world, and holds the biggest capital reserve which today is the envy of many nations.
There is no way the US can compel China to increase its imports to level off the trade disparity between the two countries. It was a mistake to slap China’s exports to the US much that it is being carried out by US importers to be sold to US consumers. It is the US importers that pay the tariff and charged their customers though increased prices. In fact, US trade deficit is not only with China with but also with 28 major exporting countries, and often is marked by outstanding loans, something that is bad to its economy.
The uncanny thing is, while President Trump talks much of trade deficit with China and Japan, he remains silent on the huge debt of the US with each reaching to trillions of US dollars in treasury bonds.
Some say outsourcing was an escape latch conceived by the US economists to save the dollar from collapsing. It was the US that rushed to relocate production to China goaded by the instinct to maximize profit. It was a win-win situation for both China and the US. China wanted to get the employment for its people to modernize its economy, while he US wanting to remain competitive in the world market.
Trump violated the sacred principle of free trade by imposing unreasonable tariff. One must take note the trade deficit of the US is not only with China. The US also suffer similar deficit with Mexico, Canada, Japan, Korea, Germany, and with many counties indicating that it is not the system of trading that is at fault but the overvalued dollar.
When President Trump imposed his prohibitive tariff he did not make the US great again. He did not explain that tariff is an imposition on American importers. What the US did is to simply add the collected tariff to the deficit but hiding the truth that it cost more to US importers and increased prices to the consumers. It is funny for there are more Americans going to Mexico and Asia to shop so they could buy more for their money. Billions of dollars slips out daily through its border all eager to buy more US goods produced abroad.
Accidentally, an overvalued dollar caused the abnormal movement in the economy like dollar salting and dollar smuggling. People tend to export their savings and capital to countries where it could generate more money, and usually it is the US dollar that is involved. As one would day, the Anti-Money Laundering Law is a law specially made for the Americans to earn additional revenue out of the confiscated savings of people wanting to bring out their dollars outside of the banking system. The fines, penalties and even confiscated currencies partake of windfall revenue to US banks.