NTU: AFL-CIO Wrong About Currency Manipulation

Earlier this week, the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) sent a letter to Members of Congress stating that “any completed Trans-Pacific Partnership (TPP) must include rules against currency manipulation – enforceable, when necessary, through recourse to trade sanctions.” The letter was prompted by the Chinese central bank’s recent decision to devalue its currency.

The AFL-CIO’s letter flatly states that foreign currency manipulation costs American jobs and that TPP countries Japan, Singapore and Malaysia “all have a history of egregious currency manipulation.” The letter goes on to suggest that China’s devaluation could lead these countries to “follow suit.”

As National Taxpayers Union (NTU) has pointed out numerous times, attempting to penalize alleged currency manipulation is misguided economics.  If a trading partner of the United States devalues its currency to encourage imports, it lowers the costs of goods for American consumers. This benefits lower-income Americans and businesses using imported materials. Likewise, devaluing currency makes goods imported from other countries more expensive, thus harming its domestic consumers. As the New York Times reported earlier this week, “By devaluing the currency, [the Chinese authorities], who have been pushing a big expansion of global investments, are eroding some of the country’s buying power overseas.”

China’s currency has appreciated considerably over the last 10 years. As Derek Scissors, an economist at the American Enterprise Institute, has written, “When China intentionally weakened its currency in 1994 – currency manipulation – the US job markets improved for five straight years. When China strengthened its currency starting in 2005 – what the critics want – our job market first didn’t change, then got much worse. The reason is obvious: China doesn’t matter to our job market. It’s so unimportant that the last two times China changed currency policy, the jobs result was the opposite of what currency critics expected.”

While the details of TPP are not yet public, one thing is certain: Congress should ignore the AFL-CIO’s warnings about the alleged problems of currency manipulation.