James Pethokoukis

Politics and policy from inside Washington

A 25 percent rise in the yuan would create … 57,000 U.S. jobs

April 6, 2010

That, according to Ray Fair of Yale University. Other private estimates put the number in the hundreds of thousands, if not millions.  AEI’s Phil Levy explains the methodology involved:

Our more aggressive bidders use a crude approach. They look at the trade gap, assume that every billion dollars of trade deficit equates with a certain number of jobs, and multiply. Fair, in contrast, uses years of data to estimate a detailed model of how the global economy works. Then he reruns the model under the assumption of a 25 percent appreciation in China’s exchange rate. His model contains the same effects that the others rely on—increased demand for U.S. goods as Chinese imports become more expensive. But he sees offsetting effects as well: decreased Chinese output and imports; increased U.S. prices; decreased U.S. wealth and wages; increased U.S. interest rates. He finds the latter effects more than outweigh the former.

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