No, Negotiating a Currency Chapter in the TPP Will Not Cause a Trade War or Cost Us Jobs

Jared Bernstein Senior Fellow, Center on Budget and Policy Priorities

No, Negotiating a Currency Chapter in the TPP Will Not Cause a Trade War or Cost Us Jobs

You really need an anthology of catch-phrases you hear in this benighted town of DC to understand the difference between what people actually say and what they mean. When someone says “my good friends from the other side of the aisle…,” they’re not really good friends. And when someone says, “that will cause a trade war!” it means they badly want to pass a trade agreement that’s got a deep flaw, and rather than fix the flaw, they threaten you with the prospect of war.

This ridiculous tactic was on full display today in a NYT piece on how members of Congress are, to their great credit, insisting that the Trans Pacific Partnership (TPP) contain strong, actionable provisions against currency management by those with whom we trade. According to a spokesman for Rep. Paul Ryan, who’s working with the administration to pass the TPP, “retaliatory enforcement rules” against countries who manage their currency “could prompt a trade war” and “jeopardize our status as the world’s leading currency.”

Utter nonsense. To insist on such provisions could, as is the administration’s and Ryan’s real and legitimate concern, scuttle the trade deal on which they’ve been working for years, though that’s not at all a slam dunk. In fact, the article supports a contrary point I’ve made recently based on interactions with members of Congress that the only way Congress will ratify the treaty may be if our negotiators take action on currency.

A bit of background. A few months ago I wrote that there should be no TPP trade deal without a set of rules blocking signatory countries from managing their currencies to boost the value of the dollar, thus making their exports to us cheaper and ours to them more expensive (other economists have made similar points).

I later spoke about the issue to a group of House Democrats, many of whom favored the trade deal, and virtually all agreed that such a “chapter” in such a large and encompassing trade deal was essential.

What these members, many of whom have import-competing businesses in their districts, have come to understand is that it makes no sense for us to have to live with large trade deficits as has been the case every year since the mid-1970s. Members recognize that those deficits represent the import of lots of goods at lower prices than would otherwise prevail. But they also represent the export of millions of high value-added jobs that we/they can’t afford to ignore just because some partisan yells trade war or some negotiator frets that we’re giving them too heavy a lift.

Dean Baker goes through much of the substance, pushing back on the idea that rules against currency management are impossible to craft.

…defining currency manipulation is almost certainly much simpler than many other topics covered in the Trans-Pacific Partnership (TPP), like defining “bio-similar” drugs so that patent protections can be extended to them or defining the types of regulatory takings that could be actionable under the investor-state dispute resolution tribunals established by the pact. (For example, can a company claim damages for a higher minimum wage?)

In the link to my piece above, I go into some detail as to why the arguments that rules against currency management are impossible to write or enforce are misguided, and again, I’m not the only one with this view. Economists Fred Bergsten and Joe Gagnon were making these points well before I was.

This whole part of the debate is increasingly fraught with ridiculous arguments. Treasury Secretary Lew, a very smart, compassionate guy with whom I’m proud to have worked, is quoted in the piece saying: “…an enforceable provision on currency could have a negative impact on our ability to protect American workers and firms and set back our international efforts.”

That’s just plain scare tactics, as well as upside-down economics. To the contrary, and of course Lew knows this—he and his predecessors have worked hard to push back against currency pegs in personal negotiations with their counterparts. Our manufacturers and their workforces have long been hurt by the actions of currency managers making to make our goods less competitive in international markets.

Stop the foolishness and talk to us like grownups. There will be no “trade war” if we pursue a currency chapter in the TPP. There will be a lot of arguing and negotiating about what technically constitutes currency manipulation to gain an edge in trade. It could blow up the deal, and Sec’y Lew, Rep. Ryan, and others should explain to us and to members of Congress why that’s a more costly outcome to American workers and businesses than continuing to live with labor demand-draining trade deficits.

If they can do so, then let’s have a TPP. If they can neither make a convincing case based on facts, not war mongering and fear tactics, nor can they offer a convincing alternative for legislative actions outside of the TPP against currency manipulation, then they must either negotiate a currency chapter or accept defeat.


This has been reposted from Jared Berstein's blog, On the Economy.


Jared Bernstein joined the Center on Budget and Policy Priorities in May 2011 as a Senior Fellow.  From 2009 to 2011, Bernstein was the Chief Economist and Economic Adviser to Vice President Joe Biden, executive director of the White House Task Force on the Middle Class, and a member of President Obama’s economic team. Prior to joining the Obama administration, Bernstein was a senior economist and the director of the Living Standards Program at the Economic Policy Institute in Washington, D.C. Between 1995 and 1996, he held the post of deputy chief economist at the U.S. Department of Labor. He is the author and co-author of numerous books, including “Crunch: Why Do I Feel So Squeezed?” and nine editions of “The State of Working America.”