Most Americans probably don’t think much about how currency is valued. But currency manipulation by countries like China has cost millions of manufacturing jobs.
Editor’s note: This is the fourth entry in our 10-part series examining the policies and priorities that President-elect Joe Biden should focus on as he looks to lead America out of the COVID-19 pandemic and rebuild the American economy.
Exchange rates and the ways in which governments manage them seem far, far away from the factory floor. But as it turns out, they heavily impact the competitiveness of businesses and the ability of American companies to preserve jobs and create new ones.
Case in point: No serious economist disagrees that China’s currency, the yuan, has been grossly undervalued for significant periods of times in the 21st century. This misalignment has made China’s exports artificially cheap, resulting in surging imports entering the United States, displacing millions of American manufacturing jobs.
While economists may be seriously divided on the impact of globalization and trade on jobs and workers, there is far more agreement that currency manipulation is a significant challenge. From Brad Setser at the Council on Foreign Relations to Joseph Gagnon and Fred Bergsten at the Peterson Institute for International Economics, and on to Nobel laureate Paul Krugman, these concerns have been forcefully stated over the years.
Presidential candidates from Barack Obama and Mitt Romney to Donald Trump all promised to take some form of action against China on currency manipulation. Now you can add President-elect Joe Biden to that list. Here’s what he wrote to the United Steelworkers:
“When it comes to currency manipulation, I oppose any and all attempts by foreign countries to artificially manipulate currency values to gain an unfair advantage in trade. In the past, certain countries — such as China — have illegally depressed the value of their currency relative to the dollar as part of a larger economic strategy, aimed at making their exports relatively cheaper on world markets. This action has cost American manufacturers and exporters jobs; jobs they would have kept had our trading partners played by the rules. Under my watch, every one of our partners will adhere to sound economic and trade principles, and I will strongly oppose illegal efforts to manipulate currency as a way of gaining an advantage over American workers. And, existing law should be strengthened in any new trade agreements with enhanced transparency and consultation provisions and, where needed, disciplines and enforcement to address the negative effects of manipulation.”
Here’s the part where we point out few, if any, of the campaign promises on currency manipulation have ever been converted into policy.
China has been designated by the Treasury Department as a currency manipulator only once recently, during heated U.S.-China trade negotiations in 2019. The Treasury Department withdrew that designation as the Phase One trade agreement was executed in January 2020.
What should the Biden Administration do to deter currency manipulation, punish the violators, and protect American workers and businesses?
First, continue and strengthen a new policy established by the Commerce Department to treat undervalued currency as a countervailable subsidy. A November determination on imported tires from Vietnam marked the first time this policy was effectively deployed. This provides American businesses and workers with an important new tool in the trade enforcement toolbox. For nearly two decades, supporters of currency manipulation legislation similar to this policy attempted to pass it through Congress with no luck, except for overwhelming affirmative votes in the House of Representatives in 2010 and a different approach in the Senate back in 2005.
Second, ensure a Section 301 case examining the impact of Vietnam’s currency policies is completed and that tariffs or similar other enforcement tools are utilized to offset this unfair trade practice. Current U.S. Trade Representative Robert E. Lighthizer announced USTR’s investigation of Vietnam’s currency practices in October.
Third, strengthen the language in the Phase One trade agreement with China that covers currency so that the U.S. can better hold China to account. Since 2014, the yuan has lost nearly 8 percent of its value against the dollar. China’s recent surge in exports and a ballooning trade surplus should give the U.S. and our allies cause for alarm.
Fourth, ensure that Treasury Secretary nominee Janet Yellen meets early with American businesses, economists, and labor leaders who are impacted by currency policies. Too often, Treasury Secretaries—Democratic and Republican alike—have done the bidding of Wall Street and our international trade partners in domestic debates on currency manipulation. It’s time for the Treasury Department to become a partner in progress rather than an unmovable obstacle.
Fifth, when President-elect Biden decides it is time to negotiate new trade agreements after restoring America’s competitiveness and investing in workers, as he has promised to do, those trade deals should include enforceable disciplines on currency misalignment in the form of tariffs, withdrawal of benefits, or other strong tools. While there is breakthrough currency language in the USMCA, it is not adequate and must be strengthened.
Finally, Biden should prioritize a competitive U.S. dollar instead of that comforting but misleading strong U.S. dollar rhetoric that has emanated from presidential administrations since the 1990s. An overly strong dollar benefits the international business-traveling elite on overseas trips, but trips up American manufacturers in global marketplaces, contributing to a loss of global export market share and inviting surges of imports that can replace domestic production. A competitive dollar, on the other hand, together with a set of other smart policies, could increase our exports, encourage reshoring, and contribute to the creation of new well-paying factory jobs.
In the early days of the Obama administration, then-Vice President Biden eased off Obama’s tough campaign talk on currency manipulation. We can’t afford another walk back, which is why we’ll be holding the Biden administration accountable on this issue.
Listen to Scott Paul talk about currency manipulation on The Manufacturing Report podcast.