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International Trade
Boosts U.S. Economy
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nternational trade contributes to
higher incomes and stronger pro-
ductivity growth in the United States
and abroad. U.S. businesses enjoy greater
access to overseas markets. American
families enjoy a greater variety of choices
and lower prices. Trade lowers costs
through economies of scale by giving
firms access to world markets. It also fos-
ters competition by opening up domestic
producers to foreign com-
petition, and it enhances the
flow of ideas, which drives
innovation.
Michigan is a major bene-
ficiary of trade with the addi-
tional benefit of being one
of the top destinations for
foreign-headquartered multi-
national firms in the U.S.
The benefits of trade are
unevenly distributed, howev-
er, and some people are nega-
tively affected by increased
global competition. For example, the
textile industry in the U.S. has declined
and workers lost their jobs because other
countries have a comparative advantage
in the production of textiles.
Despite some negative consequences,
expanded textile trade increases prosper-
ity. American families benefit from the
lower cost of imported textile products.
Countries producing textiles obtain
the resources to purchase goods from
American companies. The gains from
international trade increase living stan-
dards for most workers, while providing
the resources to help displaced workers.
The U.S. is in the final stages of nego-
tiating trade agreements with Asia, the
Trans-Pacific Partnership (TPP), and
with Europe, the Transatlantic Trade and
Investment Partnership (TTIP). Congress
is debating Trade Promotion Authority
(TPA) that provides for an up or down
vote on these agreements, without
amendments, and thereby encourages our
trade partners to put their best offers on
the table.
Michigan's Senators Debbie Stebanow
and Gary Peters are leading an effort to
add a currency manipulation clause to the
TPA. A full page ad in the Detroit Free
Press on April 22 paid for by Ford Motor
Co. states "without strong and enforceable
rules against currency manipulation in
trade deals, foreign countries can tip the
scales in their favor."
The domestic auto industry is con-
cerned that Japan is manipulating its
currency (depreciating it against the dol-
lar), giving Toyota, Honda and Nissan a
competitive edge selling cars in the U.S.
In similar fashion, the appreciation of
the dollar against the Euro in the last six
months gives BMW and Mercedes an
advantage selling cars in the U.S.
The auto industry has worldwide pro-
duction capacity The foreign competitors
have U.S. production facilities to hedge
against currency fluctuation, while parts
can still be sourced from overseas. One
of the major issues in the negotiations
with Japan is Tokyo's demand that the
U.S. eliminate immediately its
2.5 percent tariff on auto parts
imports. Washington's demand
is that Japan substantially
increase its imports of rice for
consumer use. The domestic
auto industry will lose a cost
advantage; American rice farm-
ers will gain access to a large
market.
Currency manipulation
occurs when a government
buys or sells foreign currency
to push the exchange rate of its
own currency away from market value or
to prevent the exchange rate from moving
toward its market value.
However, it's important to note that
many factors influence exchange rates,
including monetary policy. It can be dif-
ficult to distinguish between currency
fluctuations arising from monetary policy
and those driven by currency manipula-
tion. Case in point: the U.S. monetary
policy of Quantitative Easing had the side
effect of depreciating the dollar, making
U.S. exports cheaper and benefiting Ford
Motor Co. when they exported cars from
domestic factories.
In a March 5 letter to the Congressional
leadership, the 14 chairs of the President's
Council of Economic Advisors under
Presidents Ford, Carter, Reagan, Bush,
Clinton, Bush and Obama addressed the
issue of currency manipulation. The let-
ter stated, "It is not desirable for trade
agreements to include provisions aimed
at so-called currency manipulation. This
is because monetary policy affects the
value of currencies. Attempts to penalize
countries for supposedly manipulating
exchange rates would thus impose con-
straints on US. monetary policy, to the
detriment of all Americans:'
The trade agreements with Asia and
Europe will increase U.S. economic
growth with net benefits to American
businesses, families and workers.
Currency manipulation issues should
not be permitted to stand in the way of
economic progress.
❑
Jonathan Silberman is a professor of econom-
ics at Oakland University. You can contact him
at silberma@oakland.edu.