Ways and Means Committee Democrats: Trading Views on TPP Currency Manipulation Declaration

Earlier this week the Ways & Means Committee Democrats resumed the Trading Views: Real Debates on Key Issues in TPP series with a forum on currency manipulation. Expert academics and an industry representative provided their testimony, answered questions, and submitted statements on the impact of the Trans-Pacific Partnership’s (TPP) currency manipulation declaration. A few highlights include:

Dr. Eswar Prasad, Senior Fellow at Brookings Institute and New Century Chair in International Trade and Economics, testified saying:

“Exchange rates constitute a key relative price that affect cross-border trade flows. Hence, it is tempting to consider including surveillance of exchange rate management practices among TPP members as part of the agreement. However, given the broad range of macroeconomic and other policies that influence exchange rates, this would amount to expanding the scope of the agreement into ill-defined and possibly counterproductive territory.”

Dr. Prasad acknowledged the impact of currency manipulation on the global economy and that regulating it “is certainly a worthwhile policy objective from the broader perspective of international financial stability”, but there are better forums to address it “such as the IMF.” He concluded that:

“An already ambitious and sprawling trade agreement such as the TPP could end up being hobbled rather than strengthened by trying to include currency issues within its ambit.”

“[But] if ratified and implemented by its members in a manner that respects the principles of the agreement, it has the potential to substantially increase trade flows within the region, benefiting the economies of all 12 members. The agreement could also set minimum thresholds for other trade agreements around the world, especially those that involve existing TPP members.”

Another expert, Fred Bergsten, Senior Fellow and Director Emeritus at Peterson Institute for International Economics explained that:

“Currency manipulation was by far the most distorting and unfair trade practice in the world during the decade or so to about 2013.”

“Manipulation declined substantially in 2014, however, and almost disappeared in 2015.”

“Market forces explain most of this dramatic change in behavior, [but] I suspect that US pressure, especially from the Congress, was also a factor in the sharp decline in manipulation. The United States reacted strongly, for example, to Japan’s taking down the yen in late 2012 and China’s mini-devaluation of last summer.”

“We cannot know whether this welcome drop in manipulation will continue when market forces reverse and push the dollar down again... It is thus critically important to erect and implement effective deterrents against the practice. [One] potentially significant change in US currency policy that should contribute to such deterrence… is the currency side agreement to the Trans-Pacific Partnership announced in November by the Treasury Department. It commits the TPP countries – assuming that the TPP itself is approved by Congress and other parliaments and enters into force as negotiated – to avoid manipulation and to publish the relevant data so their currency practices can be monitored. The new consultative group created by that agreement will meet at least annually and release public reports on its deliberations.”

Although Mr. Bergsten “would have preferred that more extensive currency obligations would have resulted from the trade debate of the past year”, he believes that “significant progress can be made against the risk of new manipulation” if Congress passes the TPP and takes domestic action to beef up the Treasury Department’s monitoring and response capacity to currency manipulators. Therefore he recommends Congress:

“Pass the TPP as soon as possible, including to activate the side agreement on currency.”

You can watch the full forum here or read Dr. Prasad and Mr. Bergsten’s statements here.