Pushing the fast-track authority that will be needed to pass the Trans-Pacific Partnership (TPP), a Washington Post editorial (4/19/15) complained about those who argue that rules on currency values should be included in the deal:
The problem is that it’s very difficult to establish precisely, much less in a legally binding multinational agreement, “correct” valuations of major currencies or the precise intent behind any particular policy that affects currency values. Both the Federal Reserve and the Bank of Japan have adopted quantitative easing in recent years, mainly to fight deflation and revive domestic demand, but the effects have spilled over onto their currencies. Do the congressional opponents of fast track think both central banks were manipulators?
The worst alleged currency manipulator, China, isn’t even a party to TPP, and it probably wouldn’t seek to join the treaty for years.
This is another round of the Barbie Doll “currency values are hard” story. As with every issue in the trade deal, there can be complications, but the basic story is pretty damn simple. It is not hard for people other than Washington Post editors to distinguish between a central bank buying its own country’s bonds (quantitative easing) and buying other countries’ bonds (currency manipulation). The latter is also accompanied by large trade surpluses, which are another good tell-tale sign for the economically literate. Fred Bergsten, the very pro-trade former president of the Peterson Institute for International Economics, has written extensively on this issue (Foreign Affairs, 1/18/15), as have many others.
It is not clear what China not currently being a party to the deal is supposed to mean. The explicit intention is to incorporate China into the TPP at some future date. If currency rules are not included now, is the Post‘s argument that it will be easier to get them included after China has joined?
Trans-Pacific Partnership protesters in Miami last month seemed to understand the issues. (Joe Raedle/Getty Images/Washington Post)
Of course, an over-valued dollar is a problem that does not affect everyone equally. It means a loss of manufacturing jobs and a trade deficit. The gap in demand from a trade deficit is very difficult to fill from domestic sources, especially when you have folks like the Washington Post editors going nuts over budget deficits. In other words, a trade deficit due to an over-valued dollar likely means higher unemployment and lower wages, since most workers will have less bargaining power.
However, an over-valued dollar is good news for businesses like Walmart who have low-cost supply chains in the developing world, and companies like GE who have outsourced much of their production. It’s also good news for businesses that would rather not have to raise wages to compete for workers. And it is good news for people with lots of money who like to travel overseas. For these reasons, it is not surprising that the Post is not concerned about setting currency rules.
It is also worth noting a wonderfully wrong inference in the Post editorial. It tells readers:
The foes of fast track deserve to lose on the merits, but they might be interested to know that they also appear to be out of step with public opinion. A recent Gallup poll shows that 58 percent of Americans “view foreign trade as an opportunity for economic growth through increased US exports,” while only 33 percent see it as “a threat to the economy from foreign imports.”
Of course, TPP is not mostly about trade; it is about putting in place a pro-business regulatory structure. Stronger patent and copyright protections (yes, that is “protection,” as in “protectionism”) are likely to lead to high prices for drugs and other items, both here and abroad. The latter are likely to crowd out the other exports that the Gallup poll responders identified as job creators.
If the Post wants to present evidence on public attitudes to TPP, it should tell us the results of a poll asking about a trade deal that was negotiated primarily by business interests to impose a more business-friendly structure of regulation on the United States and its trading partners. The question should include the fact that the deal will set up an extra-judicial legal process to enforce these rules. If the polls show 58 percent support for this TPP-type deal, honestly described, it will undoubtedly have a very big impact on the debate.
Economist Dean Baker is co-director of the Center for Economic and Policy Research in Washington, DC. A version of this article originally appeared on CEPR’s blog Beat the Press (4/20/15).
