WASHINGTON (Reuters) – US lawmakers are drafting battle plans to punish foreign rivals accused of currency manipulation but a growing chorus of critics argue the battle is already won and warn the push may derail a massive trade pact.
A bipartisan bill introduced this month and proposals from other lawmakers seek to stop trading partners such as China and Japan from manipulating exchange rates to make their goods cheaper for overseas buyers.
The trigger for the new currency offensive is a nearly completed Trans-Pacific Partnership (TPP) trade pact. It encompasses 12 Pacific Rim trading partners including Japan, whose stimulus programme has helped lop off a third of the yen’s value since late 2011, worrying US automakers like Ford Motor Co.
And China is seen by many Americans as a great stealer of jobs, following years in which Beijing weakened its currency to undercut American manufacturers.
Insistence on a currency chapter in the deal is widely seen as a “poison pill” which could derail the entire pact and reflects many lawmakers’ distrust of more open trade.
“You always need a bogeyman, someone to blame your troubles on,” said Jeffrey Frankel, a Harvard professor who was a top economist in the Clinton White House.
A series of respected economists and former top officials have voiced concern that currency restrictions will derail the trade pact, although some are also lined up on the other side.
“Almost certainly, the effort would be a classic deal breaker,” former Treasury official Ted Truman wrote in a blog post last week.
Federal Reserve Chair Janet Yellen spoke out against the currency proposals on Tuesday, telling senators such rules could “hobble” monetary policy.