Congress should not permit President Obama to negotiate a free trade agreement with Pacific nations without tough new rules to stop currency manipulation and other cheating on trade deals.
Trade agreements eliminate tariffs and lower regulatory barriers to commerce—for example, restrictions on U.S. banks and information technology for companies operating in foreign markets.
Those arrangements should offer consumers a wider range of less expensive imported goods, boost exports and increase American incomes by moving workers from lower paying jobs—such as assembling cell phones—to higher paying employment—designing new devices and software.
A Trans-Pacific Partnership offers great economic potential and would strengthen U.S. security ties with Asian allies, but it only makes sense with enforceable disciplines on currency manipulation and unfairly subsidized foreign goods.
Too often, free trade disappoints.
The president implemented a trade pact with South Korea in March 2012 promising big gains. Bilateral imports are up $15.5 billion but exports only $3 billion—killing more than 100,000 manufacturing jobs.
When imports grow more than exports, economists expect the value of the dollar to fall against foreign currencies—that raises prices for foreign goods, lowers prices for U.S. products sold abroad and creates good-paying jobs. Frustrating those free market adjustments, principal U.S. competitors—China, Japan, Germany, and South Korea—pursue monetary and exchange rate policies explicitly intended to keep their currencies cheap against the dollar.
Since last summer the value of the dollar is up 16 percent. That’s enough, for example, to kill virtually all of the good paying jobs promised by the President’s proposed Trans-Pacific Partnership establishing free trade with 11 other Asian nations—including long-time currency manipulator Japan.
Also, governments target industries—such as autos and information technology—and compel U.S. firms to move factories and R&D abroad to sell in their markets. That steals jobs that should stay in America.
Already, U.S. imports exceed exports by more than $500 billion annually—directly destroying 4 million jobs.
Currency manipulation is illegal under World Trade Organization rules, but Obama has ignored pleas from industry, members of congress and both liberal and conservative economists to effectively address the problem.
Similarly, U.S. trade laws permit the Commerce Department and U.S. International Trade Commission to impose tariffs on subsidized imports that destroy jobs. But those ignore currency manipulation and have been weakened in recent years permitting many Asian exporters to evade enforcement.
Republicans and Democrats in Congress have proposed fixes to trade enforcement laws, but the White House wants to block a provision that would require the Commerce Department to consider currency manipulation in its calculations of foreign subsidies.
Modern trade agreements liberalize the treatment of foreign goods and services by altering domestic regulations for product standards, the environment and the like. Foreign leaders won’t negotiate with an American president if Congress can alter his commitments during the ratification process. Hence, Congress has granted presidents since Gerald Ford Trade Promotion Authority, which binds the House and Senate to put trade deals to a simple up or down vote.
The Senate is about to vote on a bill that would grant Obama TPA to negotiate the Trans-Pacific Partnership that does not require the president to seek tough rules to stop currency manipulation and relegates strengthening U.S. trade enforcement laws to a separate bill, which the president could veto even if Congress grants him TPA.
Presidents Reagan and Clinton were forceful advocates of worker interests in international trade and from 1980 to 2000 the economy accomplished 3.4 percent growth and annual family incomes rose $9,900.
The same cannot be said about both the recent Bush and Obama administrations and since 2000, U.S. GDP growth has averaged 1.8 percent and family incomes are down about $4,600.
A Trans-Pacific Partnership offers great economic potential and would strengthen U.S. security ties with Asian allies, but it only makes sense with enforceable disciplines on currency manipulation and unfairly subsidized foreign goods.
Congress should require the president to agree to those in exchange for approving Trade Promotion Authority to finalize the Trans-Pacific Partnership trade pact.
Peter Morici served as Chief Economist at the U.S. International Trade Commission from 1993 to 1995. He is an economist and professor at the Smith School of Business, University of Maryland, and a widely published columnist. He is the five time winner of the MarketWatch best forecaster award. Follow him on Twitter @PMorici1.
