A True Test of American Leadership

By Matthew McMullan
May 15 2015 |
Japanese yen! Get ’em dirt cheap. | Photo by flickr user Japanexperterna.se

Will the Senate pass the Portman-Stabenow currency amendment?

Currency manipulation is the most significant 21st century trade barrier that American businesses face today, and it is the least enforced against.

Michigan Sen. Debbie Stabenow said that on the floor of the U.S. Senate as she implored her colleagues to send a Trade Promotion Authority (TPA) bill to President Obama with instructions to take up this issue within the framework of the Trans-Pacific Partnership (TPP).   

Still, as significant a barrier as it is, it also might be the least understood. There are plenty of critics out there who dismiss concerns over currency in the context of trade agreements a “poison pill,” prescribed by protectionists to scuttle long-discussed agreements.

They’re willfully missing the point. Ignoring currency manipulation – an issue which economists left, right, and center say needs to be addressed – undercuts American claims to global leadership. It distorts truly free trade. It ultimately costs American jobs. And now is the time to do something about it.

Death by Taxes

As the old saying goes, only a few things are certain in this world. The phrase historically hasn’t referred to “currency manipulation,” but our government’s capitulation on this point of order might make you think otherwise. A strong dollar policy has made U.S. exports more expensive around the globe, and our major trading partners’ nasty habit of subsidizing their exports by effectively taxing America’s via weighted currencies has made the situation far worse.

Consider automobiles. According to the Detroit News:

A weak yen cheapens the price of Japan's exports, making Japanese cars cheaper to buy in the United States.

It goes on to note that critics contend that ongoing currency manipulation puts between $2,000 and $8,000 per exported vehicle in the pockets of Japan’s largest automakers. Others still say that export subsidy is higher. 

Job Loss

It’s no secret that employment in the American manufacturing sector fell off a cliff in 2000 and has only recently begun to pick itself up again. But progress has been halting, as the U.S. goods trade deficit, which directly feeds into those manufacturing jobs numbers, has remained stubbornly high for years.

What’s been a main factor in that ridiculously high trade deficit? Currency. Ending global currency manipulation, according to research from the Economic Policy Institute, would reduce the U.S. goods trade deficit by up to $500 billion in three years. That, in turn, would create jobs in every Congressional district in the nation. And much progress on that seemingly unattainable goal will be made if the TPP – a trade deal that will encompass roughly 40 percent of global trade – takes concrete steps to bar the practice.

Nobody Said It Would be Easy

Addressing currency will take a significant amount of American leadership, which is what the TPP is supposed to be all about. Much has been made of the Obama administration’s focus on Asia. It has reallocated U.S. military resources to focus on the region, and its trade policy has been designed to bolster ties to governments along the Pacific Rim. The argument, according to the president himself, is that if the United States doesn’t write the rules on international trade agreements, its rivals will.

It’s curious, then, why the administration continues overlook the problem of currency, when its rivals benefit so much from the practice. Virtually every country around the globe has agreed to refrain from this practice, as part of membership to the International Monetary Fund and World Trade Organization. But the language in those charters are largely toothless, meaning it will take trade deals with clear enforcement measures in them to take on currency with any success.

A failure to do so will be interpreted as acceptance of the practice. And it will continue.

But it doesn’t have to. Congress has begun the debate on TPA, and there is a significant amount of support for an amendment, offered by Sen. Stabenow and Ohio Sen. Rob Portman, that would instruct the Obama administration to include enforceable currency provisions in any future trade deal. That would very clearly mean including currency rules in the TPP.

That is a very good idea, and it demands our attention and support.

America has reached a rare moment in time where the political will is there to force action on the damaging practice of currency manipulation. Senators Stabenow and Portman are there, at the right time, with a legislative proposal that will force our government to act in the best interests of its manufacturers and the workers they employ. The decision to support this amendment will qualify as a true test of American leadership. Will we have truly free trade, or won't we? Currency manipulation must be addressed.