Yesterday, a group of six Republican members of Congress sent a letter to President Obama demanding his administration renegotiate the Trans Pacific Partnership (TPP), a promising trade agreement between the United States and 11 other Pacific Rim nations. The authors of the letter make two primary points – it was a mistake for TPP to not include measures to combat alleged currency manipulation and this Congress should not vote on the agreement during the Lame Duck period after the November election. While National Taxpayers Union (NTU) has not taken a formal position on TPP, the letter is nonetheless disappointing.
To begin with, of the 11 other parties to the TPP, only Japan was listed on the Treasury Department’s currency manipulation watch list released in April of this year in their biennial report.
Critics of alleged currency manipulation couch their arguments in terms of its impact on American manufacturing. Specifically, critics argue that countries like China and Japan devalue their currencies to hold down the price of exports, which gives those countries’ manufacturers a competitive edge over American manufacturers.
There are two very sound reasons why TPP does not contain currency manipulation provisions. First, a country’s monetary policy affects its exchange rate and the value of its currency. Restrictions on currency changes could subject the United States to foreign challenges to our own domestic monetary policy.
Next, beyond a potential loss in sovereignty, currency manipulation is not a panacea in global commerce. If a country devalues its currency in order to encourage more exports, it raises the price of items it imports from foreign countries. At the same time, forcing countries to raise the value of their currency could raise the prices of imported goods that families and businesses in the United States rely on. Simply put, the economic impact of changes in currency value is a highly complex matter and currency manipulation does not provide a simple, clear-cut path to prosperity.
The broader point is worth empahsizing: too many politicians rely on neo-mercantilist rhetoric that touts the benefits of free trade only in terms of American exports. While opening up markets abroad to American made goods is a positive, imports are the more important benefit to American families and businesses. This was a key lesson taught by Adam Smith in the Wealth of Nations and it’s too often ignored by politicians and pundits today.
TPP Consideration This Congress
As mentioned, the letter urges President Obama to avoid sending TPP implementing legislation to Congress this year. This is a mistake. If TPP merits support, it should be ratified as soon as possible. For starters, delaying ratification could cost American families and businesses dearly. In addition, the current makeup of Congress is amenable to free trade, but there is no guarantee next Congress will be.