{"id":1010,"date":"2020-10-06T13:27:28","date_gmt":"2020-10-06T20:27:28","guid":{"rendered":"http:\/\/savingusmanufacturing.com\/blog\/?p=1010"},"modified":"2020-10-06T13:27:28","modified_gmt":"2020-10-06T20:27:28","slug":"market-access-charge-would-eliminate-trade-deficit-increase-gdp","status":"publish","type":"post","link":"https:\/\/savingusmanufacturing.com\/blog\/general\/market-access-charge-would-eliminate-trade-deficit-increase-gdp\/","title":{"rendered":"Market Access Charge Would Eliminate Trade Deficit & Increase GDP"},"content":{"rendered":"\n

In July 2017, the Coalition for a\nProsperous America (CPA) released a paper titled, \u201cThe Threat of U.S. Dollar\nOvervaluation: How to Calculate True Exchange Rate Misalignment & How to\nFix It\u201d by Michael Stumo (CEO), Jeff Ferry (Research Director) and Dr. John R.\nHansen, a 30-year veteran of the World Bank and Advisory Board member. <\/p>\n\n\n\n

The purpose of the paper is to\nexplain the problem of the dollar overvaluation, to show how to accurately\ncalculate the dollar\u2019s misalignment against trading partner currencies, and to\npropose a solution this serious threat to America\u2019s future. At the time, the\ndollar was overvalued by 25.5% compared to\nother major currencies.<\/p>\n\n\n\n

The\nsolution developed by Dr. Hansen is a Market Access Charge (MAC) \u201cas a system to\ndiscourage overseas private investors and return-sensitive official investors\nsuch as sovereign wealth fund managers from excessive speculation and trading\nin U.S. dollar assets.\u201d He believed that the MAC would reduce \u201cthe incentive\nfor foreigners to invest in dollars, gradually and safely reduce its\novervaluation, benefiting the U.S. economy and restoring control over our own\ncurrency.\u201d<\/p>\n\n\n\n

In\nFebruary 2019, CPA released the working paper<\/a>,\n\u201cQuantifying Economic Growth and Job Creation from a competitive Dollar,\u201d showing\nthat a 27 percent realignment in the trade weighted US dollar exchange rate\nover five years would eliminate the US trade deficit, result in an additional\n$1 trillion in GDP and create 5.2 million new jobs.<\/p>\n\n\n\n

The\nMAC was proposed in a Senate bill introduced in July 2019, S.2357, titled the<\/p>\n\n\n\n

\u201cCompetitive\nDollar for Jobs and Prosperity Act.\u201d It was introduced by Sen. Tammy Baldwin (D-WI)\nand Josh Hawley (R-MO), and is languishing in the Senate Committee on Banking,\nHousing, and Urban Affairs. <\/p>\n\n\n\n

On\nOctober 5, 2020, CPA released a working paper<\/a>,\n\u201cModeling the Effect of the Market Access Charge on Exchange Rates, Interest Rates\nand the US Economy,\u201d b<\/strong>y Steven L Byers, PhD. and Jeff Ferry.<\/p>\n\n\n\n

In\nSection 1, The Relationship Between International Capital Flows and the Exchange\nRate, the authors state that \u201c<\/strong>The standard open-economy macroeconomic\nmodels2 predict that under a floating exchange rate regime, when a country runs\na trade deficit\/surplus, the exchange rate will adjust to eliminate the\nimbalance. However, exchange rates have not adjusted and imbalances have\npersisted. The US trade and current account deficits have continued to run at\nsome 2%-3% of US GDP for decades (Figure 1), suggesting that other forces are\npreventing the deficits from correcting themselves.\u201d<\/p>\n\n\n\n

The\nauthors go into detailed economic models that establish the relationship\nbetween equity inflows and the currency dollar exchange rate.<\/p>\n\n\n\n

In\nSection 2, The MAC, Capital Flows and the Dollar Exchange Rate, the authors examined\nhow a charge on capital inflows is likely to impact inflows and the exchange\nrate, focusing on the Market Access Charge (MAC) discussed above. The authors\nstate: \u201cThe MAC would be a one-time fee paid on the purchase of any U.S. dollar\nfinancial asset by a foreign entity or individual. The MAC is designed to\nmoderate foreign demand for dollar assets and realign the US dollar exchange\nrate to a trade-balancing level. The Baldwin-Hawley bill specifies that the\nFederal Reserve Board would set and manage the MAC to achieve current account\nbalance within a five-year time horizon. Once balance was achieved, the Fed\nwould manage the MAC to keep the US economy close to current account balance\nover time. \u201cThe Baldwin-Hawley bill specifies that the Federal Reserve Board\nwould set and manage the MAC to achieve current account balance within a\nfive-year time horizon. Once balance was achieved, the Fed would manage the MAC\nto keep the US economy close to current account balance over time.\u201d<\/p>\n\n\n\n

This\nsection covers detailed economic models on how the MAC would affect different\nkinds of equity flows, such as bonds, Treasury notes<\/p>\n\n\n\n

In Section 3, How the MAC Impacts\nInterest Rates, the authors \u201csought to estimate the impact of the MAC on the\nfinancial sector with a focus upon interest rates and government debt service\ncosts.\u201d They investigated and modeled the effect of a 1%, 3%, and 5% MAC on the\nnominal exchange rate, 10-year interest rates, and interest rate on outstanding\nFederal debt.<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

With regard to revenue the MAC would generate for\nthe US Treasury, the authors comment, \u201cThough the MAC would reduce capital\ninflows significantly, our model suggests that even with a 5% MAC, gross equity\ninflows would continue at a rate in excess of $3 trillion a quarter, with\ninflows into debt securities at similar levels. MAC transaction fees, paid by\nforeign purchasers of US securities, would provide a large new source of\nrevenue to the US Treasury. Table 4 shows that these revenues could reach $672\nbillion, equivalent to 19% of last year\u2019s total federal tax revenue.\u201d <\/p>\n\n\n\n

In Section 4, Effects on the Economy, the authors\nstate: \u201c\u2026US producers of goods and services would gain market share in the US\nmarket and export markets. Our model estimates the impact of increased domestic\nproduction over the five-year period on US GDP and employment. In the case of a\n5% MAC, the dollar\u2019s exchange value would fall by 27\u2026the more competitive\ndollar would balance trade, increasing exports by $765 billion or 29.5% over\nthe baseline, and reducing imports by $167 billion (5.1%). The fall in imports\nis modest because while imports lose share in the domestic market, the rise in\neconomic growth from the more competitive exchange rate boosts GDP, which leads\nto higher imports. But trade would be balanced. The GDP would rise by $1.01\ntrillion or 4.6%. Compared to the baseline forecast, the economy would create\n4.9 million new jobs by 2025\u2026 the\nnew jobs would be weighted towards internationally competitive sectors, notably\nmanufacturing and natural resources, which offer higher pay (and often better benefit\npackages) than the average US job.\u201d<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

The authors conclude that \u201cThe model shows large benefits to the US economy and the US. Treasury. Further study is warranted and should be pursued.\u201d\u00a0 I would go one step further and say that the Baldwin-Hawley \u201cCompetitive Dollar for Jobs and Prosperity Act.\u201d (S. 2357) should be released out of committee as soon as possible to be debated and then passed in the full session of the Senate.\u00a0 Reducing our trade deficit, increasing our GDP, and creating more higher paying manufacturing jobs are important actions to be taken to create prosperity in America.<\/p>\n","protected":false},"excerpt":{"rendered":"

In July 2017, the Coalition for a Prosperous America (CPA) released a paper titled, \u201cThe Threat of U.S. Dollar Overvaluation: How to Calculate True Exchange Rate Misalignment & How to Fix It\u201d by Michael Stumo (CEO), Jeff Ferry (Research Director) and Dr. John R. Hansen, a 30-year veteran of the World Bank and Advisory Board […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[11,268,64],"class_list":["post-1010","post","type-post","status-publish","format-standard","hentry","category-general","tag-american-manufacturing","tag-overvalued-currency","tag-trade-deficit"],"_links":{"self":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts\/1010","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/comments?post=1010"}],"version-history":[{"count":1,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts\/1010\/revisions"}],"predecessor-version":[{"id":1013,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts\/1010\/revisions\/1013"}],"wp:attachment":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/media?parent=1010"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/categories?post=1010"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/tags?post=1010"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}