Japan Proves TPP Won’t Fix a Key Trade Problem: Currency Manipulation
Many in Congress have been concerned about the effect of currency manipulation on our country’s ability to sell things to the world. They demanded that the Trans-Pacific Partnership (TPP) outlaw the practice. The administration promised that the TPP and accompanying side agreements would do that.
Now Japan’s finance minister has said that the TPP will not change Japan’s currency practices. Now what?
Currency Manipulation
If a country’s currency is “weak,” it means that it’s “price” is low, and things made in that country therefore cost less in world markets than they otherwise would. So things made or done there cost less than things made done in countries with “strong” currencies. Therefore countries with “weak” currencies get more business and can employ more people.
“Currency manipulation” is the term for what happens when a country takes steps to make its currency worth less than functioning markets would price it. Some countries manipulate their currencies to make them “weak” so they can get more business and employ more people than they would if markets were setting the correct currency rates. (It’s complicated; see “What Is Currency Manipulation?” for a more complete explanation.)
This currency manipulation is bad for American companies that make and do things that they sell outside the U.S. (“Main Street”). It has been and is an especially big problem for America’s manufacturing industries, costing millions of jobs and increasing our country’s enormous, humongous trade deficit. Some estimates say it has cost us up to 5.8 million American jobs.
But it is good for investor types, etc. (“Wall Street”) with a ton of money who want to pay people less and pocket the difference, or to buy and control things in the rest of the world. So who wins,
TPP Text And Side Agreements
During the “fast track” fight over the trade promotion authority bill, which sets aside normal congressional and constitutional procedure for approving trade agreements, promises were made about addressing currency manipulation, in exchange for votes. Those promises have not been met.
TPP does not address currency manipulation, but was accompanied by a “Joint Declaration of the Macroeconomic Policy Authorities of Trans-Pacific Partnership Countries.” This declaration says, specifically:
● All TPP countries commit to avoid unfair currency practices and refrain from competitive devaluation.
● TPP countries will publicly report their foreign-exchange intervention and foreign reserves data, some for the first time.
● Officials from all TPP countries will consult regularly to address macroeconomic issues, including to engage on efforts to avoid unfair currency practices.
If this doesn’t sound particularly convincing and enforceable, that is because it isn’t. In “The Trans-Pacific Partnership’s biggest failure” at The Week, Jeff Spross explains the problem and damage of currency manipulation and the problem of enforcement in TPP and says:
…it doesn’t appear to include any language on reciprocity — allowing us to go into financial markets and buy another country’s currency if they’re going in and buying our dollars. Nor does the side pact carry the enforcement bite of the official TPP agreements. Its main enforcement mechanism is the honor code of diplomatic pressure.
… currency manipulation is arguably the most important factor for protecting American workers here at home. More than that, it’s key to reorienting the entire flow of global trade in a way that’s healthier for developing countries as well as the United States.
As the text and accompanying agreements were (finally) made public, Treasury Secretary Jack Lew promised this will work. The Wall Street Journal reports, in “Pacific Trade Deal Includes Pact to Deter Currency Abuse,” that “Treasury’s Lew says terms of deal ‘will actually work to hold parties accountable’”:
An unusual currency pact accompanying a major Pacific trade agreement unveiled Thursday will give Washington a new set of tools to prevent trading partners from manipulating their currencies to gain trade advantage, U.S. Treasury Secretary Jacob Lew said.
[. . .] The currency accord is the first to accompany a free-trade deal. While the currency agreement offers no sanctions or other enforcement mechanisms, officials involved in the negotiations say it will provide ammunition to dissuade policy makers from cheapening their currencies to win a trade advantage.
“These are mechanisms that we think will actually work to hold parties accountable,” Mr. Lew said in an interview ahead of the release of the agreement’s text. “We have more tools with this joint declaration than we have under the pre-existing set of understandings.”
That was November 5.
Japan Says TPP Will Not Stop It From Manipulating Currency
On November 6, Japan’s Finance Minister said that Japan will not change its currency practices because of TPP or its side agreements. Reuters reported, in “Finance Minister Aso: TPP deal won’t have binding power on Japan’s forex policy“:
Finance Minister Taro Aso said on Friday that a joint declaration issued by the Trans-Pacific Partnership (TPP) this week will not have binding power on Japan’s monetary and currency policies.
[…] “There won’t be any change” in Japan’s currency policy, he told reporters after a cabinet meeting.
Here is video purportedly of Japan’s Finance Minister saying they’re not going to do it:
Now What?
On the one hand TPP is being sold with a promise to “increase access” for U.S. companies to sell into countries like Japan, but on the other hand currency manipulation can then ensure that any such market access is undermined.
This was predictable, and many did predict it. (Few predicted it would take less than a day.) Ford Motor Company, for example, saw what was coming. USA Today reports, in “Ford balks as Obama hails trade deal for automakers,”
But Ford, in a statement released later, chastised the administration for not making enforcement of currency manipulation a central part of the agreement, even as the U.S. Treasury noted that member countries made a side agreement to report financial data, in some cases for the first time, and to “avoid currency practices and refrain from competitive devaluation.”
… The Dearborn-based automaker said the proposal “falls outside the TPP and … fails to include dispute settlement mechanisms to ensure global rules prohibiting currency manipulation are enforced.”
“We appreciate that Congress escalated this priority for the administration,” Ford said in its statement, “but the currency forum (as the process has been referred to) does nothing to change the status quo.”
Done Deal?
How much is TPP a “done deal” because of fast track, as well as because of members of Congress who are planning on leaving and getting lucrative jobs from the corporations that benefit from TPP? Or will Congress demand further negotiation to include actual, enforceable currency (and labor and environment and other) provisions?
House Ways & Means Committee Ranking Member Sander Levin (D-Mich.) hinted at the need for renegotiation before President Obama signs the deal. He said the committee will begin hearings on TPP the week of November 16 and will look at “the necessity for any modifications to the agreement, before the agreement is signed.”
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This has been reposted from the Campaign for America's Future.
