{"id":925,"date":"2019-09-03T17:23:23","date_gmt":"2019-09-04T00:23:23","guid":{"rendered":"http:\/\/savingusmanufacturing.com\/blog\/?p=925"},"modified":"2019-09-03T17:23:23","modified_gmt":"2019-09-04T00:23:23","slug":"baldwin-hawley-act-would-fix-overvalued-u-s-currency-problem","status":"publish","type":"post","link":"https:\/\/savingusmanufacturing.com\/blog\/tradepolicy\/baldwin-hawley-act-would-fix-overvalued-u-s-currency-problem\/","title":{"rendered":"Baldwin-Hawley Act Would Fix Overvalued U.S. Currency Problem"},"content":{"rendered":"\n

The Baldwin-Hawley Senate Bill, S.2357<\/a>, titled\nthe \u201cCompetitive Dollar for Jobs and Prosperity Act\u201d was introduced by Sen.\nTammy Baldwin (D-WI) and Josh Hawley (R-MO) on July, 31, 2019. The purpose of\nthe Bill is \u201cTo establish a national goal and mechanism to achieve a\ntrade-balancing exchange rate for the United States dollar, to impose a market\naccess charge on certain purchases of United States assets, and for other\npurposes.\u201d<\/p>\n\n\n\n

This Bill is the\nlegislative vehicle for the Market Access Charge (MAC) first proposed in a\npaper<\/a> titled,\n\u201cThe Threat of U.S. Dollar Overvaluation: How to Calculate True Exchange Rate\nMisalignment & How to Fix It\u201d released on July 11, 2017 by the Coalition\nfor a Prosperous America and written by Michael Stumo (CEO), Jeff Ferry\n(Research Director) and Dr. John R. Hansen, a former Economic Advisor for the World Bank, CPA Advisory Board member,\nand founding  Editor of Americans\nBacking a Competitive Dollar (ABCD). <\/p>\n\n\n\n

The paper explained the\nproblem of the dollar overvaluation, showed how to accurately calculate the\ndollar\u2019s misalignment against trading partner currencies, and proposed a\nsolution to this serious threat to America\u2019s future by means of a Market Access Charge (MAC). Dr. Hansen\u2019s proposal was \u201cto\ninitiate the MAC with a 0.5% charge \u201con any purchase of U.S. dollar financial\nassets by a foreign entity or individual\u2026As a one-time charge, the MAC will\ndiscourage would-be short-term investors, many of whom hold dollars or\ndollar-denominated securities overnight or even for minutes for the sake of a\ntiny profit.<\/p>\n\n\n\n

The\nMAC rate would operate on a sliding scale, geared to the value of the trade\ndeficit as a percentage of GDP. The MAC tax would rise if the trade deficit\nrose, and fall as the trade deficit falls\u2026 Most importantly, the MAC would have\na substantial impact on the dollar\u2019s value, moving it gradually and safely to a\ntrade-balancing exchange rate and keeping it there, regardless of what other\ncountries do. If the trade deficit goes to zero, so would the MAC.\u201d<\/p>\n\n\n\n

In an email to supporters on August 13, 2019, Dr. Hansen wrote, \u201cA major\nmilestone has just been reached in the battle to kill the U.S. trade deficit,\nstop the offshoring of U.S. industry, and put millions of Americans to work at\nwell-paying jobs\u2026The bill\u2019s presentation to the Senate is indeed a major\nmilestone \u2013 but only one of many that lie between where we are today and the\nbill\u2019s ultimate passage. You support and advice would be most welcome as the\nprocess moves forward.\u201d<\/p>\n\n\n\n

The Bill\u2019s summary cites the following \u201dFindings\u201d by Congress:<\/p>\n\n\n\n

 \u201c(1) The strength, vitality, and stability of\nthe United States economy and, more broadly, the effectiveness of the global\ntrading system are critically dependent on an international monetary regime of\nexchange rates that respond appropriately to eliminate persistent trade\nsurpluses or deficits by adjusting to changes in global trade and capital\nflows.<\/p>\n\n\n\n

(2)\nIn recent decades, the United States dollar has become persistently overvalued,\nin relation to its equilibrium price, because of excessive foreign capital\ninflows from both public and private sources.<\/p>\n\n\n\n

(3)\nCountries with persistent trade surpluses maintain or benefit from undervalued\ncurrencies over a long period of time. As a result, those countries\noverproduce, underconsume, and excessively rely on consumers in countries with\npersistent trade deficits for growth. Those countries also export their\nunemployment and underemployment to countries with persistent trade deficits.<\/p>\n\n\n\n

(4)\nCountries with persistent trade deficits, including the United States, absorb\nthe overproduction of countries with persistent trade surpluses, thereby\nreducing domestic wages, manufacturing output and employment, economic growth,\nand innovation.<\/p>\n\n\n\n

(5)\nThe United States possesses fiscal and monetary tools to pursue national\neconomic goals for employment, production, investment, income, price stability,\nand productivity. However, exchange rates that do not adjust to balance\ninternational trade can frustrate the achievement of those goals. The United\nStates does not have a tool to manage exchange rates in the national interest.\u201d<\/p>\n\n\n\n

The Bill defines a \u201cUnited States asset\u201d as \u201c(i) a\nsecurity, stock, bond, note, swap, loan, or other financial instrument\u2014 <\/p>\n\n\n\n

(I) the face value of which is denominated in\nUnited States dollars;<\/p>\n\n\n\n

(II) that is registered or located in the United\nStates; or<\/p>\n\n\n\n

(III) that is an obligation of a United States\nperson;<\/p>\n\n\n\n

(ii) real property located in the United States;<\/p>\n\n\n\n

(iii) any ownership interest in an entity that is a\nUnited States person;<\/p>\n\n\n\n

(iv) intellectual property owned by a United States\nperson; and<\/p>\n\n\n\n

(v) any other asset class or transaction identified\nby the Board of Governors of the Federal Reserve as trading in sufficient\nvolume to cause a risk of upward pressure on the exchange rate of the United\nStates dollar.<\/p>\n\n\n\n

It excludes: \n\u201c(i) a good being exported from the United States; or (ii) currency or\nnoninterest bearing deposits.\u201d<\/p>\n\n\n\n

In the above mentioned paper<\/a>,\nDr. Hansen proposed that the MAC to be \u201ca 0.5% charge on any purchase of U.S.\ndollar financial assets by a foreign entity or individual\u2026As a one-time charge,\nthe MAC will discourage would-be short-term investors, many of whom hold\ndollars or dollar-denominated securities overnight or even for minutes for the\nsake of a tiny profit. The MAC rate would operate on a sliding scale, geared to\nthe value of the trade deficit as a percentage of GDP. The MAC tax would rise\nif the trade deficit rose, and fall as the trade deficit falls\u2026\u201d<\/p>\n\n\n\n

The Balwin-Hawyley Bill stipulates that \u201cOn and after the\ndate that is 180 days after the date of the enactment of this Act, there shall\nbe imposed a market access charge on each covered buyer in a covered\ntransaction\u2026The Board of Governors of the Federal Reserve System shall\nestablish and adjust the rate of the market access charge at a rate that\u2014 (A)\nachieves a current account balance not later than 5 years after the date of the\nenactment of this Act; and (B) maintains a current account balance thereafter.\u201d<\/p>\n\n\n\n

However, under the \u201cALTERNATE\nINITIAL MARKET ACCESS CHARGE\u201d clause, \u201cIf, on the date that is 180 days after\nthe date of the enactment of this Act, the Board of Governors has not\nestablished the initial rate for the market access charge, the initial market\naccess charge shall be established at the rate of 50 basis points of the value\nof a covered transaction.\u201d<\/p>\n\n\n\n

The bill concludes with a description of how the Market\nAccess Charge should be charged, collected, and reported to the U.S. Treasury.<\/p>\n\n\n\n

At the time of the CPA paper cited above, the \u201cThe U.S. dollar was calculated at 25.5%\novervalued compared to itsFundamental\nEquilibrium Exchange Rate (FEER). However, in an article<\/a>\ntitled \u201cWhy We Need Baldwin-Hawley Currency Reform Now,\u201d by Jeff Ferry, CPA\nChief Economist, published on August 21, 2019, he writes that the Coalition for\na Prosperous America estimates \u201cthe dollar is overvalued today by 27 percent.\u201d\nHe points out that\u201d that an overvalued currency makes it harder for a nation\u2019s\nexports to compete in world markets and easier for foreign imports to take\nshare in its domestic market.\u201d<\/p>\n\n\n\n

Mr. Ferry explains that \u201c\u2026overvaluation undermines our\nindustrial base, makes our agricultural goods less competitive and tilts the\nincome distribution in favor of the top 10 percent. Instead of an economy built\non production and employment, we get growth built on consumption and debt. In\nfact, the only sector that favors overvaluation is the financial sector,\nbecause it helps Wall Street bankers sell stocks and bonds around the world. On\nWall Street they like to call overvaluation the \u2018strong dollar.\u2019\u201d<\/p>\n\n\n\n

He concludes by saying that \u201cVoltaire said the world is like a\ngiant watch: it runs automatically according to an internal mechanism. If one\nof the settings is wrong, the watch won\u2019t run properly. Our economy is a huge\n$21 trillion watch. If an exchange rate is set too high, a national economy\nruns down. If an economy doesn\u2019t invest enough in its own industry, it becomes\nless competitive\u2026On the international side,\nthe US economy has been underproducing and overconsuming for some 40 years and\nadjustments are needed. Right now, Baldwin-Hawley is the most crucial\nadjustment Congress could enact.\u201d<\/p>\n\n\n\n

As a sales\nrepresentative for American manufacturers, I can testify that America\u2019s\nmanufacturing industry is hurt by the overvalued dollar.  It hurts the ability for American companies to\nexport products that are competitive in the world marketplace. It even hurts\nthe ability for American manufacturers to compete against the low prices of Chinese\nimports in the domestic market.  I firmly\nendorse the passage of this critically needed bill by Congress in this session to reduce the U.S. dollar\u2019s\novervaluation, discourage unwanted investment in the dollar, and significantly\nreduce America\u2019s trade deficit. <\/p>\n\n\n\n

.<\/p>\n","protected":false},"excerpt":{"rendered":"

The Baldwin-Hawley Senate Bill, S.2357, titled the \u201cCompetitive Dollar for Jobs and Prosperity Act\u201d was introduced by Sen. Tammy Baldwin (D-WI) and Josh Hawley (R-MO) on July, 31, 2019. The purpose of the Bill is \u201cTo establish a national goal and mechanism to achieve a trade-balancing exchange rate for the United States dollar, to impose […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[256,216,4],"tags":[269,268,64],"class_list":["post-925","post","type-post","status-publish","format-standard","hentry","category-currency-misalignmentmunipulation","category-legislation","category-tradepolicy","tag-legislation","tag-overvalued-currency","tag-trade-deficit"],"_links":{"self":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts\/925","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=925"}],"version-history":[{"count":1,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts\/925\/revisions"}],"predecessor-version":[{"id":926,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts\/925\/revisions\/926"}],"wp:attachment":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/media?parent=925"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/categories?post=925"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/tags?post=925"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}