November 11, 2015
The NYT decided to take on Donald Trump’s assertion that the Trans-Pacific Partnership (TPP) is a bad deal for the United States because it doesn’t have any provisions on currency manipulation, henceforth referred to as “management.” (“Manipulation” implies something that is hidden. Most of the countries who have been candidate “manipulators” have an explicit policy of targeting the exchange rate of their currency against the dollar and buy large amounts of U.S. government bonds to keep the value of their currency down. We don’t have to catch them in the middle of the night doing something inappropriate in currency markets. They do in broad daylight where everyone can see it.)
The fact check begins:
“While it is true that the trade deal includes no binding mechanism for dealing with countries that engage in currency manipulation — something that could precipitate sanctions, for example — it does include commitments by signatories to avoid aggressively weakening their currencies to gain market share for their exports.”
Actually, the TPP signatories already have similar commitments as members of the I.M.F. It is not clear how the new commitments are qualitatively different and with no enforcement mechanism, it is difficult to believe anyone will take them seriously. We have clear enforcement mechanisms for the rights of investors, obviously they did not feel that vague “commitments” were sufficient. Why should anyone who cares about the trade deficit caused by currency management be obligated to accept a much weaker and likely meaningless provision?
Next we get:
“While many economists agree with Mr. Trump that currency manipulation by our trading partners costs American jobs, they often frown upon the inclusion of strict anticurrency manipulation provisions in the text of trade agreements, arguing that it can be more fruitful to address the problem in bilateral negotiations with the offending country.”
Yes, we have been doing bilateral negotiations for decades. We still have a trade deficit of close to 3 percent of GDP (@$500 billion a year). If economists like Paul Krugman, Larry Summers, and Olivier Blanchard are correct, and we face an ongoing problem of secular stagnation, then the trade deficit is creating a major shortfall in demand that can not be easily filled by other components of GDP.
As far as the view of “many economists,” economists tend not to take seriously the unemployment and wage declines caused by large trade deficits. It is rarely their friends and families that are affected.
And for the concluding shot:
“Finally, as Senator Rand Paul pointed out, China is not a party to the Trans-Pacific Partnership agreement. In fact, one of the administration’s arguments for passing the agreement is that it would help check China’s influence in the region, and its ability to ‘write the rules of the global economy.'”
The NYT strikes out big time here. The plan is to expand the TPP to eventually include China. The idea is to have them play by our rules. If there are not rules on currency management at the time China enters the TPP it is very unlikely it will agree to have them added.
Note: link added, thanks Ltr.
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