9

The TPP’s Missing Ingredient

WASHINGTON, DC – Looking for ways to stimulate economic growth and create jobs, US President Barack Obama’s administration is seeking to press ahead with the mega-regional free-trade deal known as the Trans-Pacific Partnership (TPP). But is the US going about it the right way?

The TPP’s initial scope was relatively modest, involving the United States and a range of trading partners (Australia, Brunei Darussalam, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam). But now Japan is on board, South Korea is watching closely, and there is potential for engaging with China through this or a similar framework in the foreseeable future.

The typical approach when seeking to finalize an agreement aimed at reducing trade barriers – while attempting to protect labor and environmental standards – is to ask for less, not more, from those on the other side of the table. But at this stage, the TPP is different: the odds of success would be much greater if the US attached the additional requirement that participating countries do not engage in currency manipulation.

One of the major shortcomings of the global trading system in recent decades has been the absence of an effective constraint on countries that intervene heavily in order to keep their currencies undervalued. A significantly undervalued currency implies a potentially large trade surplus.