As the Obama Administration vigorously pursues its trade agenda, bipartisan groups in the House and Senate have brought the issue of currency manipulation to the forefront of the trade policy debate. On February 10, Representatives Sander Levin (D-MI), Tim Ryan (D-OH), Mo Brooks (R-AL), and Tim Murphy (R-PA) introduced the Currency Reform for Fair Trade Act. The Senate bill, entitled the Currency Undervaluation Investigation Act, was sponsored by Jeff Sessions (R-AL), Sherrod Brown (D-OH), Lindsey Graham (R-SC), Charles E. Schumer (D-NY), Richard Burr (R-NC), Debbie Stabenow (D-MI), Susan Collins (R-ME), Bob Casey (D-PA), Joe Donnelly (D-IN), and Rob Portman (R-OH). These very similar bills empower the Department of Commerce to investigate and impose countervailing duties to offset the subsidy that occurs when a foreign government manipulates its currency.
Efforts to address currency manipulation have long received strong bipartisan support; the House bill was originally introduced in 2010 and passed by a vote of 348-79, but it was not taken up by the Senate. The following year, the Senate passed the Currency Exchange Rate Oversight Reform Act of 2011 by a vote of 63-35, but that bill was never taken up in the House.
Foreign currency manipulation interferes with America's ability to compete in the global marketplace. According to a Fact Sheet for the House bill, the Peterson Institute "estimates that interventions in currency markets by foreign governments have cost U.S. workers as many as five million jobs over the last decade by making it more difficult for U.S. exporters to compete in other countries and by subsidizing their exports." As reported in the April 2014 edition of King & Spalding's Trade & Manufacturing Alert, the Economic Policy Institute reports that ending currency manipulation could reduce the U.S. trade deficit by up to $500 billion per year, grow GDP by up to $720 billion, and create up to 5.8 million new jobs.
However, the bipartisan push to address currency manipulation does not end with the recently introduced legislation—promoters also want currency manipulation to be included in the Trans-Pacific Partnership (TPP) negotiations and Trade Promotion Authority (TPA) legislation. The TPP seeks to establish a free trade agreement that would cut tariffs between the United States and eleven trading partners in the Asia-Pacific region. TPA would allow Congress and the Administration to "fast track" Congressional consideration of trade agreements by requiring an up or down vote without the ability to amend an agreement negotiated by the Administration. The concern that has been raised is that a current party to the TPP such as Japan or possible future parties such as China would use currency manipulation to undermine the concessions and benefits received by other signatories. Some proponents of currency legislation have insisted that specific currency manipulation provisions must be directly included in the TPP, and have even threatened to withhold support from TPA and/or the TPP if they are not.
The effort to link currency manipulation to these potential trade agreements received pushback from President Obama as well as from Republican leaders like House Ways & Means Committee Chairman Paul Ryan. They have argued that tying TPP and TPA to currency manipulation is a mistake and could stall progress on the negotiations. The Obama Administration's position is that currency manipulation is best addressed through the Treasury Department rather than in trade agreements, and Secretary Lew has indicated that there are efforts underway through the Group of 7, G-20, the International Monetary Fund, and bilateral talks that could be impeded if a new approach is taken. Federal Reserve Chairwoman Janet Yellen has also voiced concern over including currency manipulation provisions in trade agreements. While acknowledging foreign currency manipulation as a problem, Ms. Yellen stated she would be wary of any trade provision that would "hamper" monetary policy, emphasizing that the Federal Reserve's own monetary policy may impact exchange rates despite the fact that it is "designed for valid domestic objectives of price stability and maximum employment," and "certainly is not currency manipulation."
The effort to address currency manipulation has received support in the manufacturing community, with proponents emphasizing the devastating impact of currency manipulation on American jobs and American companies' ability to compete in global markets. A trade agreement, many argue, that involves former or current currency manipulators but does not address the issue would render these trade liberalization efforts null and void.