BUSINESS DAY

Debate Over Currency Cheating Intensifies in Trade Talks

By 
A highway in Tokyo. American automakers argue that intentional weakening of the yen has raised the cost of imported vehicles. Franck Robichon/European Pressphoto Agency 
WASHINGTON — Thirty-six years ago, Japan lowered import tariffs on foreign automobiles to zero, ostensibly opening the world’s fourth-largest auto market to full international competition. Yet United States automakers say 93 percent of the cars on Japan’s well-tended roads are still made in Japan by Japanese companies.
Consumers there simply prefer their country’s cars, Japan has said.
Automakers in the United States, however, say something else has long been amiss: the systematic, intentional weakening of the yen by Japanese policy makers, which effectively raised the cost of all kinds of imports, autos included.
With bipartisan momentum building for a currency amendment to the trade bill, President Obama on Tuesday publicly backed a pledge by the leaders of the Senate Finance Committee and Representative Paul D. Ryan of Wisconsin, chairman of the House Ways and Means Committee, to complete a trade policy enforcement bill by next month.
That bill, which passed the Senate last week, contains its own tough currency measure, but Republicans are quietly working to water it down if not remove it altogether. Mr. Obama backed what he called “constructive tools to address unfair currency practices.”
Opponents say the moment for such harsh measures has passed. The last time Japan overtly interfered with its exchange rate was 2011. China’s currency, the renminbi, which was long held down to help the country’s export industries penetrate markets in the United States and elsewhere, has been gaining value against the dollar. And the Obama administration insists its own diplomacy has effectively dealt with the problem.
On Tuesday, citing those gains, Treasury Secretary Jacob J. Lew sent a letter to the bipartisan leadership of the Senate Finance Committee, saying he would recommend that the president veto a trade-promotion authority bill that included a mandated response to currency manipulation.
Yet American politicians, pressed hard by Detroit, say they are not going to give up this chance to finally legislate a solution.
“This is the first time in recent American history that cheating on currency is getting the kind of attention it’s getting now,” said Senator Bob Casey, Democrat of Pennsylvania. “And that’s a good thing.”
The auto market is the No. 1 example of the impact of currency manipulation on American industries. Outside niche auto brands like Lamborghini, no foreign automaker — not Ford, not Mercedes, not BMW, not Hyundai — has a market share in Japan that reflects what it has in the rest of the world, said Stephen E. Biegun, Ford Motor’s vice president for international government affairs.
The Ford Focus has in recent years been the world’s best-selling compact car, with nearly 1.1 million sold in 2013. That year, 800 were sold in Japan.
“Either the Japanese want to pay more and have less choice in the car market, or global manufacturers, when they get to Japan, forget how to make cars,” Mr. Biegun said in a telephone interview on Tuesday. “That strains credulity.”
Currency manipulation extends throughout the Pacific Rim: in Japan, where Tokyo’s central bank has printed more yen to help its slumbering economy grow; in China, where the renminbi has long been fixed to the dollar rather than allowed to fluctuate in response to market forces; and in Malaysia, where the government has intervened to protect the ringgit against currency traders.
The issue has rarely been more relevant to Congress. The Senate is considering extending trade-promotion authority to the president for as long as six years, allowing this administration and the next to negotiate trade deals that could be approved or disapproved by Congress but could not be amended or filibustered.
The most immediate target of that authority is the Trans-Pacific Partnership, a 12-nation accord encompassing 40 percent of the world’s economy, and stretching from Canada and Chile to Japan and Australia.
Critics of currency manipulation see a rare opportunity to elevate currency policy to the level of standard trade issues, like tariff barriers, intellectual property protection and market access.
The Economic Policy Institute, a liberal research group influential with Democrats in Congress, said the United States-Japan trade deficit reached $78.3 billion in 2013, with currency manipulation being “the most important cause.” That gap, it estimates, displaced 896,600 jobs in the United States.
But Obama administration officials and many economists see a more insidious threat to an open global economy.
If the Trans-Pacific Partnership were to forbid government interventions that influence currency prices, they argue, other countries could challenge government actions in Washington, like stimulus laws that use deficit spending to bolster demand, or monetary policies like the Federal Reserve’s printing of money to support faster economic growth. These actions, while not specifically intended to influence currency levels, nonetheless affect the value of the dollar in exchange markets.
“In 2008, Congress, the president and the Federal Reserve took decisive steps to avert a second Great Depression. Many countries, inaccurately, claimed that these polices amounted to so-called currency manipulation,” Mr. Lew wrote on Tuesday. Adopting the proposed currency rule “could put at risk our ability to take steps needed to protect the U.S. economy in the future, and would be counterproductive to our broader efforts to address unfair currency practices,” he said. “These are risks we cannot afford to take.”
Perhaps more seriously, attaching a currency provision to the trade-promotion bill could cause other countries to leave the negotiating table, sacrificing what officials see as far more important moves to open Pacific markets to American goods and services for the singular demand to end currency intervention.
Phillip L. Swagel, a former economist in the George W. Bush White House who now teaches at the University of Maryland, says that countries like China and Malaysia do intervene to distort the value of their currencies. That, in turn, has hurt American workers. But a deal to promote trade, he argues, is simply not the place to push such a delicate economic issue.
“Each country needs to have the ability to run its monetary policy in the way it sees fit,” he said. “It just seems like a strange thing to use a trade agreement to tell other countries how to run their monetary policies.”
To blunt the political push, Mr. Lew is insisting that diplomacy is rendering legislation unnecessary. He told Congress the Chinese renminbi has appreciated nearly 30 percent against the dollar since Beijing began loosening controls in 2010. China’s trade surplus has declined from 10 percent of its economy before Mr. Obama took office to 2 percent last year.
Japan, which has intervened in currency markets 376 times since 1991, has refrained from obvious manipulation since 2011, Treasury officials say.
“In my conversations with our 11 negotiating partners, I point to the strong feeling in our country, the strong feeling in our Congress” over currency issues, Mr. Lew told an economic conference on Tuesday morning, referring to the Pacific trade negotiations. “And it’s the reason we can have a conversation with them about what can we do in the context of T.P.P. on currency,” he said. “So we will continue the conversation on a very hard issue like currency, and I think we will achieve something.”
But such claims have not assuaged concerns in Congress, within export industries, nor among a group of economists particularly worried about the effects of a chronic trade deficit on the American economy.
Automakers point to the Japanese central bank’s efforts to stoke the economy through the printing of yen, which has helped lower the value of the currency against the dollar. And while China is not a party to the trade negotiations, supporters of the measure say it will send a message to Beijing not to use the excuse of a slowing Chinese economy to resume heavy-handed currency intervention in the future.
“I agree with those assessments,” Jared Bernstein, who served from 2009 to 2011 as chief economic adviser to Vice President Joseph R. Biden Jr., said of the Obama administration’s assurances that Asian nations have scaled back their currency interventions in recent years. “But I take no comfort from them for the same reason that I don’t destroy my umbrella on a sunny day.”