It doesn’t readily lend itself to a catchy bumper sticker slogan, but “Stop Currency Manipulation” has become the battle cry of Democrats and labor groups as they try to upend President Obama’s fast-track trade accord with Pacific-rim countries.
International currency manipulation by China and other economic rivals – and its long term adverse impact on U.S. trade and jobs – is only one facet of a raging debate on Capitol Hill over the terms of a major trade agreement still being negotiated by the U.S. and a dozen Asian countries to reduce barriers to trade.
Yet the issue is driving a huge wedge between Obama and his traditional allies among Democrats, progressives and labor leaders who fear the Trans-Pacific Partnership accord that is ultimately reached will hurt U.S. workers and diminish their living standards while giving rival countries the upper hand.
The House Ways and Means Committee and the Senate Finance Committee voted late last week to give Obama fast-track authority to compete negotiations of the sweeping agreement before presenting it to Congress on a take it or leave it basis.
Obama has found himself in an alliance with GOP leaders including Ways and Means Chair Paul Ryan of Wisconsin and Finance Committee Chair Orrin Hatch of Utah in moving the legislation through Congress, while only a handful of Democrats including veteran Sen. Ron Wyden of Oregon are backing him up.
Meanwhile, key Senate and House Democrats and independents – including House Minority Leader Nancy Pelosi of California and Sens. Bernie Sanders of Rhode Island and Elizabeth Warren of Massachusetts – are demanding the inclusion of tough restrictions on currency manipulation by U.S. trading partners that could boost their exports and expand their workforce at the expense of U.S. workers and businesses.
Critics complain that the fast-track approach enables lawmakers to abdicate their constitutional duties to regulate international trade and allowing the administration to gloss over the emerging details of the agreement until it is too late to do anything about them.
Pelosi told reporters last week that as part of any final agreement on a bill, Congress must first “speak to the issue of currency manipulation, which has had a negative impact on job loss in our 5country. She called the emerging fast-track legislation a major “pothole” rather than a political bump in the road.
Without totally ruling out the possibility of supporting the final version of the legislation, Pelosi urged the Republicans to work with Democrats to develop a better framework.
Sanders, an independent who is considering a bid for president, is unyielding in his opposition to both the fast-track process and the underlying TPP. "This job-killing trade deal has been negotiated in secret," Sanders said, "It was drafted with input by special interests and corporate lobbyists but not from the elected representatives of the American people."
Democratic Sen. Sherrod Brown of Ohio tried to push through an amendment to the fast-track legislation in the Senate Finance Committee to block currency manipulation, but fell short. However, the Finance Committee voted 18 to 8 to add a similar provision to a separate bill that would mandate the Commerce Department to treat currency manipulation as an illegal export subsidy and to impose duties to counter it.
Brown and other lawmakers vowed to take the fight to the floor in the coming weeks to include the anti-currency manipulation measure to the underlying fast-track trade legislation.
William Galston, a government scholar with the Brookings Institution, said in an interview that while the trade debate is highly complex and almost metaphysical, but “The importance of the issue for Democrats and some Republicans as well is clear.”
Currency manipulation is, to put it simply, using the government’s control over the money supply to artificially adjust the value of one currency relative to others. It usually involves the purchase or sale of the target currency in foreign exchange markets; when used to create advantages in the area of foreign trade, it’s considered illegal. For instance, exports from a country with a currency that is weak compared to its trading partners will be cheaper, giving that country’s businesses a theoretical advantage in the global marketplace.
However, governments frequently buy and sell in the foreign exchange markets, and there is no bright line that once crossed signals the move from legitimate to illegitimate activity. Early this year, the Russian government blew through a large portion of its foreign currency reserves in an effort to prop up the tumbling ruble. Far from subjecting the Kremlin to accusations of currency manipulation, international observers generally viewed the move as a reasonable response to a serious problem.
China, by contrast, is regularly cited as a currency manipulator, despite the fact that the value of the yuan against the U.S. dollar has actually been climbing, albeit slowly, for years now. (There is more compelling evidence of past currency manipulation by Beijing in the 1990s and 2000s, when it developed a massive trade surplus.)
The standard response to a country believed to be engaged in unfair trade practices is the imposition of tariffs meant to make exports more expensive. Of course, tariffs are a no-no between the signatories of free trade agreements, which is why those concerned about currency manipulation want to see strict prohibitions of the practice written into trade deals before they are singed.
The AFL-CIO, the Alliance for American Manufacturing, the United Steelworkers and others have pleaded with the administration for years to provide relief from China’s price-distorting currency manipulation. The administration responded with inaction.
Treasury Secretary Jack Lew for months has resisted Democratic calls for measures to prevent China and other countries from artificially depressing their currencies in order to make their exports cheaper than those of the U.S. and other countries with stronger currencies.
According to The New York Times, the administration is concerned that a ban on currency manipulation might backfire if U.S. trading partners raised strong objections to the Federal Reserve’s use of currency sales or purchases to bolster U.S. economic growth.
In a letter to Congress last week, Lew said the proposed currency manipulation raised questions about the “consistency with our international obligations.”
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