Exchange Rates and Trade Negotiations

By | April 22, 2015

I find it odd that the Canadian business community hasn’t said anything about the moves in the US Congress to use trade sanctions to counter alleged exchange rate manipulation by other countries as a way of stimulating their exports.

This issue has been a bug-bear to US politician for years, principally focused on China. The concern is that China (and others) undervalue their currencies to maintain positive trade balances with the United States.

Trade Promotion Authority (TPA) legislation now under debate in the Congress could include a stipulation that any trade agreement signed by the US must have provisions allowing trade sanctions to be used to deal with these government-driven exchange rates – like defining currency manipulation as a form of subsidy.

US Treasury Secretary Jack Lew and former treasury secretaries have told sponsors of the TPA bill that adding such a condition in the Trans-Pacific Partnership (TPP) agreement and other trade initiatives could torpedo these talks.

I agree. The appropriate way to deal with currency manipulation (real or alleged) is to use other means, such as diplomacy and the Basel process, not to try to insert new and inappropriate rules in trade agreements. For one thing, the WTO Agreement, which is the gold standard for multilaterally-agreed rules, doesn’t allow use of trade sanctions for this purpose.

What the current debate in the US Congress shows is that many US politicians are more interested in using TPA to grind their own axes and less interested in showing true US leadership in bridging differences and securing a meaningful, if less than perfect, Trans-Pacific trade deal.