President Obama, powerful business and government elites, special interests and reflexive free trade advocates are working hard to garner congressional support to consummate the ambitious and furtive 12- nation trade agreement known as the Trans-Pacific Partnership (TPP). This is a big deal; linking 40 percent of the world’s economy- so big that it has been negotiated in secret.
We are told that free trade means the unimpeded flow of goods, services, capital and labor across international markets. In this best of all free trade worlds, consumers get the lowest prices.
This is all well and good for American consumers, but what about the increased unemployment and reduced wages free trade also brings? Unless consumer prices have fallen by more than the average worker’s income in recent decades, this may not be such a great deal.
In the real world, critics say the TPP is more like managed trade than free trade. America’s trading partners engage in currency manipulation to make their exports cheaper and U.S. exports more expensive than if exchange rates were determined by market forces. Consequently, some lawmakers worry that currency manipulation by trading partners is an important cause of the large and growing U.S. trade deficit, and will further injure domestic industries and workers. For them, many of the arguments for free trade are just globaloney.
Japan, a member of the proposed TPP deal, is by its own admission a currency manipulator. Its leaders want a relatively low exchange rate for its currency, the yen, because it makes their goods and services cheaper in the United States. Automakers and other manufacturers believe such currency manipulation constrains sales of American products.
Here is a simple example: The Japanese central bank prints more yen and then buys assets denominated in dollars. This increases demand for the dollar, which increases its value while at the same time driving down the value of the yen. By manipulating their currency Japan is subsidizing its exports by making them cheaper and placing a hidden tariff on imports. The U.S.-Japan goods trade deficit reached $78.3 billion in 2013, costing U.S. workers thousands of jobs. The U.S. is acquiescing in outsourcing the value of the dollar to a trading partner who wants to win jobs and gain higher incomes for their people.
On the other hand, there are those who see the trade deficit in a positive light as it provides foreigners with dollars that they recycle by bingeing on United States Treasury debt, thus financing federal budget deficits.
Opponents of the current deal complain that, among other things, it does not address currency manipulation, which subsidizes Japan’s exports and taxes American ones. A bipartisan amendment that would have cracked down on countries that manipulate their currencies was offered by Senator Rob Portman, R-Ohio, and Senator Debbie Stabenow, D-Michigan, during the Senate consideration of the TPP, but it failed by a narrow 51-48 vote.
The Obama administration has done a good job of sealing itself off from any discordant feedback, threatening to veto the bill if the amendment passed.
Wages for American workers have been stagnant for decades and the U.S. economy has kept going by substituting growth in consumer debt for growth in consumer income.
The essential unanswered question about TPP is whether the aggregate benefits of lower prices to American consumers that leave them allegedly with more discretionary income offset job losses for the American worker and displacement of American industries.
It’s easy to be wrong about the answer to this question when the costs of being wrong are paid by others – namely the American worker.
originally published: June 13,2015