Peace through strength 2.0

“We won’t take anything off the table …” 

Americans routinely hear these words from our elected leaders when discussing foreign military threats. But we don’t hear the same conviction when it comes to one of the greatest economic threats plaguing our nation: currency manipulation. We certainly haven’t heard it in the debate over Trade Promotion Authority, which started in House and Senate committees last week.

{mosads}The United States is in the midst of a global currency war. Earlier this year, the majority of G-20 finance ministers effectively endorsed currency devaluation as a tool to prop up other nations’ economies—and Washington appears poised to stop the United States from addressing this threat by refusing to add strong, enforcement currency rules to TPA legislation.

Currency manipulation is real.

Under The Economist’s “Big Mac” index, if currencies are properly valued, the price of a Big Mac should be about the same in each country. However, in countries like India, Russia and, of course, China the price is significantly lower. In China, a Big Mac costs just 58 percent of what it does in the United States.

For the manufacturing and metals industries, this means our global competitors are able to artificially reduce consumer prices. The more a country drives down the value of their currency, the less attractive it is to buy American-made goods. We are essentially giving away part of our manufacturing base—and reducing U.S. employment in the process.

The Economic Policy Institute, a progressive think tank, estimates currency manipulation reduced U.S. employment by nearly 900,000 jobs in 2013. The Manufacturers Alliance for Productivity and Innovation found our trade deficit with China, which increased 12 percent between 2013 and 2014, alone cost 425,000 American jobs. The Peterson Institute for International Economics, a more centrist organization, estimates currency manipulation costs between one and five million U.S. jobs over a four-year period.

Yet while there is strong, bipartisan support in Congress for addressing currency devaluation—and there has been for nearly a decade since the House had 180 cosponsors on the Chinese Currency Act of 2006—there is a significant lobbying effort afoot to keep a currency discussion out of TPA. This effort was successful last week when both the Senate Finance and House Ways and Means committees voted down amendments adding strong, enforceable currency rules to TPA legislation.

These forces warn adding currency provisions to TPA would cause other countries to retaliate. There are academics and economists who have argued both sides of that question. We respect those with whom we disagree, but we also know supporters of currency efforts have worked hard to make sure their legislative solutions are “WTO-consistent.”

Taking currency language off the table puts the United States in a weak negotiating position relative to other nations.

Ideological forces opposed to strong currency provisions argue our position is isolationist. But it’s not isolationism to say that currency manipulation is happening and deserves a response. It’s realism.   

We believe in free markets and expanding free trade with other countries. But free markets require the rule of law to work. The foreign exchange markets should determine the purchasing power parity of currencies for the same product bundle of goods and services. Countries that purposefully manipulate their currencies for mercantile advantage must be held accountable. We can’t stand by as foreign governments interfere to prop up their industries. We need checks and balances to make sure our trading partners play by the rules. Not doing so puts the U.S. at a competitive disadvantage and makes our country less economically secure.  

We also shouldn’t fear what countries might do if we insist on currency provisions in new trade agreements. As the New America Foundation’s Leo Hindery Jr. has explained, over the past 10 years growth in exports to non-free trade partners has exceeded export growth to free-trade partners by 24 percent. Hindery is much more skeptical of free trade agreements than we are, but his data shows that it’s worth waiting to make the agreements fair. To improve economic certainty and generate domestic job growth, policymakers must first combat illegal subsidies and currency manipulation and then pass new trade agreements that open up new markets for manufacturing products.

There is enough muscle on both sides of the aisle to get a TPA bill with currency provisions to President Barack Obama’s desk. If Washington policymakers are serious about helping our nation’s manufacturing and metals industries, they’ll stop disarming the United States and finally pass legislative efforts to combat currency manipulation.  

Weidner is president and CEO of the Metals Service Center Institute, a nonprofit organization that represents more than 400 companies in the metals industry. Hickey is president and CEO of Lapham-Hickey Steel Corporation, a nearly century-old steel company with operations throughout the Midwest.