Fierce debate continues in Washington over the proposed trade agreement known as the Trans-Pacific Partnership (TPP), between the United States and 11 Asia-Pacific nations, including Japan. Hundreds of members of Congress (from both parties!) are joining economists left and right to include an enforceable provision on currency manipulation in the TPP, but there are still some who argue that this rule isn't needed.
That's why we put together this handy list of the top 10 facts you need to know about currency and the TPP. (Hint: It's about middle-class jobs).
- Japan, a potential TPP partner, is gaming the United States, and it's getting worse. The country's currency, the yen, is down by over 50 percent over the past three years. Meanwhile, Japan's export growth is way up. Example: Japan ships 1.5 million cars to the U.S. every year -- while we ship 20,000 to Japan.
History tells us that Japan responds to pressure on currency. Back in the 1980s, the Reagan administration compelled Japan via the Plaza Accord to raise the value of the yen and shift some production to the U.S. or lose some access to the U.S. market. And, wouldn't you know it, Japan complied.
If we want to ensure that China doesn't write the rules of trade in Asia, then the TPP must include currency, because China will be the prime beneficiary of the TPP if we don't apply pressure on currency, both inside and outside the trade agreement. China spent much of 2014 manipulating its currency, the yuan, to boost its exports. Partly as a consequence, the U.S. trade-in-goods deficit with China grew from $226.9 billion in 2009 to a record $342.6 billion in 2014. The yuan essentially hasn't increased in value since President Obama and 2012 GOP presidential nominee Mitt Romney stopped talking about it on the 2012 campaign trail.
We also know that China responds to pressure. The only significant movements in the yuan over the past 14 years have occurred when:
a. Congress voted to put pressure on China (see 2005, 2010, 2011);
b. The Obama administration made a credible threat (see 2010);
c. When China's currency cheating was part of the national political conversation (see 2012).
Defining currency manipulation isn't rocket science. Clear guidelines have been in place for decades, through organizations such as the International Monetary Fund (IMF) and the World Trade Organization (WTO), along with the Treasury Department's semi-annual exchange rate report.
The United States is not a currency manipulator (despite what some misguided pundits have argued), nor would it ever be considered one. We don't have persistent current account surpluses, and we don't accumulate massive quantities of foreign currency reserves -- two things you need to be defined as a currency manipulator by the IMF and any other credible source.
Even if you don't believe Japan is currently manipulating its currency, having a deterrent in place through the TPP simply makes sense. Establishing clear consequences for currency cheating right from the start ensures a level playing field for all parties involved.
The TPP doesn't stand a chance of passage without currency in it. Large, bipartisan majorities of the House and Senate have weighed in. So have a significant group of domestic manufacturers and economists.
Ignore the naysayers. A currency provision for the TPP is not a poison pill for the agreement. That's why traditional free-trade proponents such as Reagan administration veteran and economist Art Laffer and former Bush administration U.S. Trade Representative and current Ohio Sen. Rob Portman feel so strongly about it.
Above everything else, this isn't an academic debate. It's about American jobs. More than 900,000 U.S. jobs -- 466,000 of them in manufacturing -- were lost in 2013 due to the trade deficit with Japan (which was driven by Japan's currency manipulation). China's currency manipulation displaced 3.2 million U.S. jobs between 2001 and 2013.
But projections show that ending currency manipulation would create
over three years. And that effort starts by making sure there is a strong, enforceable rule against currency cheating in the TPP.
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