The TPP Won't Work Without Strong Currency Reform

In 2008, then-Senator Obama make bold statements about tackling currency manipulation, going so far as to call President Bush a "patsy" in the negotiation and enforcement of trade agreements. But fast forward to 2015 and you'll find a President Obama at odds with a growing list of economists, the New York Times, some former members of his own economic team, and a majority of lawmakers pushing for strong and enforceable currency manipulation deterrents in the Trans-Pacific Partnership.

So while the administration's Capitol Hill trade alliance with John Boehner and Mitch McConnell has now introduced legislation to "fast track" the TPP, discontent from key senators and members of Congress signals that Obama may need change his tune again - or risk losing a top-priority agenda item.

The final vote tally remains anyone's guess. But the possibility that a deal could go forward without addressing currency, the single largest protectionist policy in the world today, is terrible news for U.S. manufacturers and workers.

We know what will happen if it does, because history serves plenty of examples. After NAFTA - another trade deal of massive consequence for America's middle class - went into effect in 1994, the Mexican government devalued the peso suddenly and significantly. As a result, all of the promises of free trade were washed away, and scores of American factories were shuttered. Enforceable currency disciplines in NAFTA could have deterred Mexico from that course of action.

During the Asian financial crisis in the late 1990s, many regional governments rigged the market to devalue their currencies and ramp up exports. Those exports ended up surging into the U.S. at below the cost of production. Consequentially, a wave of bankruptcies swept through America's steel industry, leaving tens of thousands of workers and retirees in its wake. Enforceable currency disciplines could have mitigated this damage.

Then, in 2001, the United States led the world in welcoming China into the global economy through membership in the World Trade Organization, but didn't insist on measures to deter currency manipulation. In turn, Beijing maintained a yuan-dollar peg until 2005, spelling doom for tens of thousands of American factories and millions of American jobs. We've since learned the only changes in China's currency behavior have resulted from the threat of consequences, starting with Senate passage of a bill to slap tariffs on Chinese goods to account for the huge bilateral trade imbalance, and continuing with the passage of bills by the House in 2010 and the Senate again in 2011.

But, with President Obama failing to do his part, China's currency hasn't budged against the dollar in more than two years, even though its economy is still growing faster than ours.

Our trade negotiators have spent decades ignoring the problem of currency manipulation, and it would appear they're willing to do it again. If they do, it's entirely plausible that a TPP agreement without a currency deterrent will be interpreted as an American green light for more of this mercantilist behavior by Japan and other nations.

So what can we expect in an economic future in which the TPP does nothing to discourage this practice?

More pain for American workers.

First of all, the dollar will remain strong relative to the currencies of our major trading partners. That may sound great for business travelers who frequent Paris, but it would be bad for factory workers. And it's a lot easier to reschedule a business trip than to jumpstart a shuttered factory or revive the community in which it once prospered.

For some multinational companies based in the United States, there will be even more incentive to move production offshore to countries where the government will use competitive devaluation as a tool.

And for overseas companies with a global footprint, it will mean more incentive to prioritize exports from those same zones. Automakers will have just a little more reason to make cars in Japan rather than in Ohio.

That's why the TPP must address currency, or it's really not worth doing.

Some of the deal's defenders have noted that tariff levels for WTO members looking to export into the United States are already near rock-bottom - and that scuttling the TPP for the sake of U.S. manufacturing employment, therefore, won't do much. But that line of reasoning overlooks what passing the TPP with a currency rule would accomplish: a huge step toward establishing a legitimately free and fair market, one without protectionist non-tariff barriers.

Because no matter how skilled our workers, how modern our factories, how adept our management, how innovative our processes, or how remarkable our products, forcing American exporters to compete against other governments who won't remove their hands from the scales can't be called a free market, and hardly a fair one.

As the vote counting begins, President Obama must understand that the inclusion of strong and enforceable currency manipulation disciplines in the TPP not only makes economic sense. It would also be welcomed in Congress, attracting key votes needed to move his trade agenda forward. Without it, he'll continue to face criticism from both sides of the aisle - and it will sound familiar to the jabs he took at President Bush in 2008. It will be a mistake of his own doing, and it's one American manufacturers can't afford.

This is an opportunity for American workers and businesses. Strong currency disciplines must make their way into the TPP.