January 12, 2015
Jared Bernstein

If the new Congress can agree on anything this year, it may well be the Trans-Pacific Partnership, a trade deal between the United States and 11 other countries throughout the Asia-Pacific region. Passions run high when it comes to trade deals these days, and the Obama administration is working hard to sell it to labor unions, which roundly oppose it.

So far the pitch has been about what the deal, as written, will do to help the American economy — a pitch that hasn’t won over many, on either side of the partisan divide. But there’s one thing the administration can do that will both win over some opponents and address one of the biggest issues in global trade: add a chapter on currency manipulation.

It is not unusual for countries to manage their exchange rate — the value of their currency relative to others — to make their exports cheap while making others’ exports to them more expensive. This method has been used extensively by, among others, China, Japan, Malaysia and Singapore — aside from China, all signatories to the partnership.

The American dollar is a prime target for these currency managers. First, the dollar is the global trading system’s premier reserve currency, meaning dollars are freely traded and confidently accepted by international investors. And Americans are a highly acquisitive people — a nice way of saying we buy a lot of stuff. Consumer spending as a share of gross domestic product is about 70 percent here, 55 percent in Europe and 35 percent in China. We’re steady customers for export-led economies.

The New York Times