Currency Manipulation Was the Leading Cause of Record Trade Imbalances in 2000s

Joseph E. Gagnon (PIIE) and Melina Kolb (PIIE)

June 15, 2017

New research shows that currency manipulation by China and other countries was the main cause of historically high trade imbalances in the 2000s, widening the US trade deficit by $200 billion or more starting in 2003. For example, this PIIE Chart shows that in 2007, China would not have had a large surplus if it had not manipulated its currency. And if China and other countries had not intervened so much, the US deficit would have been 35 percent smaller. A smaller trade deficit would have reduced the size of the "China shock" on US employment by a third. Studies find that the rapid growth of Chinese exports between 2000 and 2007 cost as many as 2 million US jobs (Autor, Dorn, and Hanson 2016; Pierce and Schott 2016).

This PIIE Chart is adapted from the book, Currency Conflict and Trade Policy: A New Strategy for the United States by C. Fred Bergsten and Joseph E. Gagnon.


Autor, David H., David Dorn, and Gordon Hanson. 2016. The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade. NBER Working Paper W21906. Cambridge, MA: National Bureau of Economic Research.

Pierce, Justin R., and Peter K. Schott. 2016. The Surprisingly Swift Decline of U.S. Manufacturing Employment. American Economic Review 106, no. 7: 1632–62.

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