• About

RealityChek

~ So Much Nonsense Out There, So Little Time….

Tag Archives: New Normal

(What’s Left of) Our Economy: New Obama Report (Unwittingly) Shows Why Trade Deals Need Currency Manipulation Bans

10 Friday Apr 2015

Posted by Alan Tonelson in (What's Left of) Our Economy

≈ Leave a comment

Tags

China, currency, currency manipulation, Eurozone, exchange rates, Financial Crisis, free trade agreements, Global Imbalances, gross domestic product, Japan, Korea, KORUS, Malaysia, New Normal, Obama, recovery, Singapore, Taiwan, TPP, Trans-Atlantic Trade and Investment Partnership, Trans-Pacific Partnership, Treasury Department, {What's Left of) Our Economy

U.S. leaders keep showing us that they remain “The Gang That Can’t Think Straight” when it comes to international economic policy. Just look at yesterday’s Treasury Department report on exchange rate policies around the world – the department’s biannual assessment of whether America’s trade competitors are artificially keeping their currencies low to reap trade advantages. No countries were officially accused of this form of protectionism, but several had a Treasury finger wagged their way, including recent free trade agreement partner South Korea.

According to the report, although the Koreans have made international promises to refrain from competitive devaluations, the “sustained” rise in Seoul’s reserves and the country’s net forward position “indicates that they have intervened on net to resist won appreciation.” For good measure, Treasury noted Korea’s rising goods trade surplus with the United States and a July, 2014 International Monetary Fund judgment that the won “remains undervalued.”

In other words, Korea isn’t manipulating, but it looks suspiciously close. As a result, “Treasury has intensified its engagement with Korea on these issues. We have made clear that the Korean authorities should reduce foreign exchange intervention, limiting it to the exceptional circumstance of disorderly market conditions, and allow the won to appreciate further.”

Of course, here’s the rub: Seoul is completely free for all intents and purposes to ignore this “engagement.” For Korea’s currency interventions may clash with the international obligations it’s assumed (as in the World Trade Organization and the International Monetary Fund). But they don’t flout the only such commitment that could plausibly be enforced – that trade deal (KORUS) with the United States. After all, consistent with Washington’s reigning bipartisan consensus (especially between the last two presidents, and apparently now including Fed chair Janet Yellen), that enforceable currency manipulation bans don’t belong in trade deals, KORUS ignored the issue.

This gaping and damaging (by Treasury’s own admission) disconnect has big future implications as well. The president also staunchly opposes including an enforceable currency manipulation ban in the Trans-Pacific Partnership (TPP) trade agreement he’s seeking. This deal would already include countries widely accused of past manipulation: Japan (chided in the new Treasury report for its heavy reliance on yen weakening monetary policies to boost growth), Malaysia, and Singapore. Among likely follow-on countries: leading exchange-rate protectionist China, Korea, and Taiwan (which also just came onto Treasury’s manipulation radar).

Nor is the problem confined to East Asia, in the administration’s own view. President Obama is pursuing a lower-profile trade agreement with the European Union – even though Treasury’s report charges the Eurozone with a Japan-like easy money-led growth policy.

To be sure, the new Obama Treasury Department report doesn’t flag these or any other foreign currency policies as significant direct threats to America’s welfare – even though the rising trade deficits to which they contribute subtract from the gross domestic product’s expansion at a time when the nation remains growth-starved. But it does emphasize the potential for major indirect harm, warning that the world economy is once more becoming overly reliant on the United States as an engine of demand, and that “Doing so will not lead to a pattern of strong, sustainable and balanced global growth….” It should have added “and indeed helped set the stage for the last financial crisis and sorely inadequate New Normal that’s emerged in its wake.”

At the same time, the administration keeps insisting that new trade deals with net export-led regions will not only help speed up the historically weak U.S. recovery, but spur greater world-wide growth, too. Instead, as its own new foreign currency report makes painfully clear, it’s much likelier that if this approach to globalization succeeds:

>The United States will be more closely integrated than ever with economies determined to grow at its expense.

>It will have virtually no internationally authorized way to respond effectively.

>Therefore, slow-growth, lousy wages, surging debts, and greater financial instability will mark its future – if it’s lucky enough to avoid a new crash.

Advertisement

Blogs I Follow

  • Current Thoughts on Trade
  • Protecting U.S. Workers
  • Marc to Market
  • Alastair Winter
  • Smaulgld
  • Reclaim the American Dream
  • Mickey Kaus
  • David Stockman's Contra Corner
  • Washington Decoded
  • Upon Closer inspection
  • Keep America At Work
  • Sober Look
  • Credit Writedowns
  • GubbmintCheese
  • VoxEU.org: Recent Articles
  • Michael Pettis' CHINA FINANCIAL MARKETS
  • RSS
  • George Magnus

(What’s Left Of) Our Economy

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Our So-Called Foreign Policy

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Im-Politic

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Signs of the Apocalypse

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

The Brighter Side

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Those Stubborn Facts

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

The Snide World of Sports

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Guest Posts

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Create a free website or blog at WordPress.com.

Current Thoughts on Trade

Terence P. Stewart

Protecting U.S. Workers

Marc to Market

So Much Nonsense Out There, So Little Time....

Alastair Winter

Chief Economist at Daniel Stewart & Co - Trying to make sense of Global Markets, Macroeconomics & Politics

Smaulgld

Real Estate + Economics + Gold + Silver

Reclaim the American Dream

So Much Nonsense Out There, So Little Time....

Mickey Kaus

Kausfiles

David Stockman's Contra Corner

Washington Decoded

So Much Nonsense Out There, So Little Time....

Upon Closer inspection

Keep America At Work

Sober Look

So Much Nonsense Out There, So Little Time....

Credit Writedowns

Finance, Economics and Markets

GubbmintCheese

So Much Nonsense Out There, So Little Time....

VoxEU.org: Recent Articles

So Much Nonsense Out There, So Little Time....

Michael Pettis' CHINA FINANCIAL MARKETS

RSS

So Much Nonsense Out There, So Little Time....

George Magnus

So Much Nonsense Out There, So Little Time....

Privacy & Cookies: This site uses cookies. By continuing to use this website, you agree to their use.
To find out more, including how to control cookies, see here: Cookie Policy
  • Follow Following
    • RealityChek
    • Join 403 other followers
    • Already have a WordPress.com account? Log in now.
    • RealityChek
    • Customize
    • Follow Following
    • Sign up
    • Log in
    • Report this content
    • View site in Reader
    • Manage subscriptions
    • Collapse this bar