Currency manipulation and the loss of US manufacturing jobs
Wednesday, March 16, 2016
This year has seen the Trans-Pacific Partnership (TPP) and the North American Free Trade Agreement (NAFTA) become an integral part of the presidential primary discourse. Another closely related topic of discussion is the battered manufacturing sector in the United States.
Some industry organizations claim the dormancy of the manufacturing sector will continue and worsen, while others see a resurgence poised to take off. So far, the optimists are losing the argument.
The TPP is a trade agreement among the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam — the details of which have yet to be disclosed. According to the Office of the United States Trade Representative, the motive for the U.S. to ratify this treaty is "leveling the playing field for American workers and American businesses."
But if the past is prologue (as the saying goes), there is ample reason to distrust that this treaty will do anything of the kind — and the reason is currency manipulation.
During his first term, President Bill Clinton fought hard for NAFTA and told Congress and the public the trade agreement would create 200,000 jobs in the first 24 months after the signing and a million jobs in five years.
President Barack Obama, in his pursuit of the United States-Korea Free Trade Agreement (KORUS) told Congress and the public that the agreement would support 70,000 jobs and expand the United States' export of goods in the neighborhood of $10 billion to $11 billion.
So what really happened?
The left-leaning Economic Policy Institute (EPI) argues that more than 5 million American manufacturing jobs were lost thanks to trade deals like NAFTA and KORUS between 1997 and 2014, making promises of job growth wrong. Between in 1993, just before NAFTA took effect, and 2013 the U.S. trade deficit with Canada and Mexico exploded from $17 billion to $177.2 billion and caused the loss of 850,000 U.S. jobs.
With KORUS, exports to South Korea increased by $1 billion, but imports by the U.S. from South Korea increased by a lopsided $13 billion. Good deal for South Korea, bad deal for America. The EPI suggests this trade imbalance took more than 75,000 U.S. manufacturing jobs.
And let's not forget about China. Between 2001 — when China joined the World Trade Organization (WTO) — and 2013, the trade deficit with China increased by $240 billion and resulted in the loss of 3.2 million U.S. jobs.
What does this mean for the TPP?
While Obama has repeatedly told the country there are labor safeguards and more opportunities for American companies with TPP, debates find both Democrats and Republicans saying the weakest link in TPP is the same fatal flaw for KORUS and NAFTA: the lack of rules and regulations on currency manipulation.
Currency manipulation is when a nation sells its own currency to buy United States currency. The nation then pegs their currency to the value of the U.S. dollar and not allow their currency to move without impediment in foreign currency exchange markets. Doing this artificially lowers the cost of a county's exports, which makes the goods less expensive. In turn, this attracts more buyers. China has been accused of these practices for a long time, but they aren't participating in the TPP.
What does currency manipulation have to do with the TPP?
For starters, in 2013, our trade deficit with Japan (the result of Japanese currency manipulation) was mostly responsible for the loss of 900,000 manufacturing jobs. The American Automotive Policy Council (AAPC) is generally supportive of U.S. trade agreements but has their hackles up about the TPP. The following explains why AAPC is opposed to Japan as a member of the TPP:
"Allowing Japan, the most closed auto market among the world's developed countries and a perennial currency manipulator, to become a TPP member threatens the Obama administration's efforts to use the agreement to catalyze increased U.S. economic growth and support the creation and retention of high-quality American jobs.
"As the United States has nevertheless invited Japan to participate, it is essential that the Obama administration includes the following provisions in the TPP, which are essential to creating the foundation for free and open trade between the United States and Japan in automotive goods especially strong, enforceable currency disciplines that will prevent Japan and other countries from manipulating the value of their currency."
Korea, Mexico and other countries have been manipulating currency for a long time in deals like NAFTA and KORUS. Is it possible that both political parties agree that currency manipulation must end?
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