Yesterday, Senator Sessions (R-Al) circulated a Dear Colleague letter to other members of the United States Senate concerning Trade Promotion Authority, or TPA. Attached to the letter was an editorial written by Daniel DiMicco, a former executive with Nucor Steel, published in December of last year. The article has a litany of complaints about trade in general and TPA specifically, but they can be boiled down to concerns of a supposedly exploding trade deficit causing massive job losses due to certain trading partners’ alleged currency manipulation.
There are a number of problems with Senator Sessions and Mr. DiMicco’s positions on the trade deficit and currency manipulation. For starters, China is the world’s leading currency manipulator, but they are not a party to the Trans Pacific Partnership negotiations – the first trade deal likely to be completed if a renewed TPA becomes law.
But what about the economics of the trade deficit and currency manipulation? Does an undervalued currency and a trade deficit really cause job loss? Writing in The Hill newspaper earlier this week, the American Enterprise Institute’s Derek Scissors explained why the answer is no:
“In the real world, our trade deficit set a record high in 2006. Unemployment was just 4.6 percent. The trade deficit fell more than $300 billion in 2009, yet unemployment that year soared from 5.8 percent to 9.3 percent.” Dr. Scissors continued, “… currency manipulation can cause trade deficits and people wrongly believe trade deficits cause jobs.”
In addition, strict currency manipulation language added into TPA would likely be a poison pill. The President has indicated he would veto TPA if it includes currency manipulation provisions.
Monetary policy has a direct impact on currency valuations. Even assuming a TPA containing tighter currency requirements becomes law over the President’s objections, it is highly unlikely prospective trading partners would essentially grant veto authority over their monetary policy to the United States. Likewise, the United States would be reluctant to open the door to challenges of the Federal Reserve’s monetary policy.
It’s time to close the chapter on mercantile myths about the supposed ill effects of trade deficits. Pass Trade Promotion Authority without currency manipulation amendments.