Addressing Currency Manipulation Through Trade Agreements

Currency manipulation—governments of foreign countries intervening to suppress the value of their currencies to lower the prices of their exports and increase the prices of their imports—has vexed the United States for many years. Because most of the intervention takes place in US dollars, the dollar has been pushed to systemically overvalued levels. The US current account deficit has averaged $200 billion to $500 billion per year higher as a result of the manipulation. Several other countries, including the weak euro area economies, emerging-market countries such as Brazil and India, and many small and poor countries, have also suffered the ill effects of currency manipulation. In light of large and widespread trade effects, Bergsten calls for addressing the issue through trade agreements, especially when the International Monetary Fund and other institutions have failed to resolve it for so long. He recommends adding a currency chapter in the Trans-Pacific Partnership (TPP), which is currently under negotiation and could be the earliest trade agreement to come before Congress for approval. Including clear obligations to avoid currency manipulation in the TPP and other future trade agreements, along with an effective dispute settlement mechanism and sanctions against violators, would very likely deter future manipulation.