Congressmen cry foul over currency intervention -- until the U.S. does it.
- By Jamila TrindleJamila Trindle is a senior reporter who covers finance, economics and business where they intersect with national security and foreign policy. Her beat spans everything from the economic underpinnings of conflict to sanctions, corruption and terror finance. Before coming to Foreign Policy magazine, Jamila reported for the Wall Street Journal’s Washington bureau, covering financial regulation and economics. She has also worked as a foreign correspondent in China, Indonesia and Turkey as a freelancer for NPR, Marketplace, The Guardian and others. She moved back to the U.S. to cover the post-crisis economy for PBS in 2009.
Hundreds of Congressmen, dozens of Senators, and America’s three big automakers have all slammed the Obama administration’s giant trade deal. That’s because the 11 other countries in the so-called "Trans-Pacific Partnership" all manipulate their currency and subsidize critical industries, the critics say.
The small problem with the argument? Other countries contend that America manipulates its currency, too — by printing money again and again and again. And America occasionally subsidizes the odd industry, too. Just ask executives at the big automakers, which took massive U.S. bailouts after the financial crisis of 2008.
President Barack Obama made trade a central part of his strategy to revive the U.S. economy when he set the ambitious goal of doubling exports over five years, in his 2010 State of the Union address. Export numbers are going up, but they’re not on track to hit that target. Securing a trade deal that includes fast growing emerging market economies could move the U.S. closer to that goal, if the Obama administration can get Congress to pass the deal.
But so far, they can’t. These arguments from Congress and the car-makers are a big reason why.
Most countries agree that manipulating your currency is bad, but they also agree that sovereign governments should have control over their currencies and be able to print money as they like. Both the U.S. and Japan have been employing “easy money” policies to support their domestic economies over the past few years since the financial crisis. Making a distinction between that and intentional manipulation is very difficult.
"When other countries push down the value of their currency it’s currency manipulation, when our central bank dumps dollars into the system that’s supposedly ok because it’s supposedly for good reasons," said Derek Scissors, a resident scholar at the American Enterprise Institute.
U.S. politicians often use the idea that other countries manipulate their currencies as a way of explaining why the U.S. economy is suffering. Some observers of the trade negotiations see the currency complaint as a proxy for other concerns, like the auto industry’s desire to protect a 25% tariff on trucks that are imported to the U.S.
"They’re just demanding carve outs like they got with the Japanese on trucks already,” Scissors said.
And this is where it gets complicated. One part of the deal could be a gradual decrease in the tariff that currently applies to trucks imported to the U.S. from Japan and other countries.
"The truck tariff is 25 percent; it’s a legacy of the Chicken War we had with the Germans in the 1960s," said Bill Reinsch, the President of the National Foreign Trade Council, which represents 300 companies, including automotive, technology and financial companies. In 1964, President Lyndon B. Johnson slapped the tariff on truck imports in retaliation for a tariff that the German government put on U.S. chicken imports.
That’s just one of the many issues the Obama administration is trying to work out in a series of negotiations around the world running through the end of the year. The administration is also facing criticism for not being transparent about the negotiations. A draft of the intellectual property chapter of the deal released by Wikileaks last week drew further calls for openness amid complaints from consumer advocates that the deal was giving too many concessions to corporate interests. It’s hard to tell whether the administration will meet its end of year goal, but the auto industry isn’t likely to be the last one to trot out a list of demands.
"When you come to the final stages of these negotiations you always hear from specific firms and organizations that want to see certain things in the deal,”said John Murphy, from the Chamber of Commerce.
Take the automakers, who are worried that other countries (specifically Japan) will drive down their own currency in order to make it cheaper to sell their cars and trucks to other countries. Auto lobbyists say that’s unfair.
"It artificially lowers the cost of other countries exports and that makes it more difficult for people that make things in the United States to compete," Matt Blunt, President of the American Automotive Policy Council. Blunt said that if the U.S. doesn’t include provisions to deal with this problem, the Council — which represents Chrysler Group LLC, Ford Motor Company and General Motors Company — won’t support the trade deal. Yes, that’s right. American auto companies — beneficiaries of an $80 billion government bailout after the financial crisis – are objecting to other governments helping their domestic companies.
Lots of lawmakers (230 representatives and 60 Senators) have written letters raising the issue of currency manipulation. Michigan Democrat Rep. Sandy Levin, who sits on the powerful Ways and Means Committee, has put forward a proposal to create a panel to judge whether countries are artificially depressing their currencies.
"There is no point in negotiating a TPP agreement to eliminate import duties if countries are allowed to effectively reimpose those duties by manipulating their currencies," Rep. Levin said in a statement.
The provision is not seen as likely to be adopted because other countries would object. It’s not just that America is seen as a hypocrite on this issue. It’s also just hard to determine objectively when a currency is over-valued or under-valued, which makes it a subjective and politically-charged topic.
"Leaving those issues to be determined by an ad hoc panel that’s pulled together…is a pretty a tall order," said John Veroneau, a partner at Covington & Burling LLP and former Deputy U.S. Trade Representative. Big international organizations like the International Monetary Fund and the World Trade Organization have grappled with the topic, but haven’t come up with a way to satisfy the concerns of all involved.
Reinsch, from the National Foreign Trade Council, added: "No one has ever come up with an objective, agreed upon way to think about that."