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Addressing Currency Manipulation Through Trade Agreements

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  • C. Fred Bergsten

    (Peterson Institute for International Economics)

Abstract

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.

Suggested Citation

  • C. Fred Bergsten, 2014. "Addressing Currency Manipulation Through Trade Agreements," Policy Briefs PB14-2, Peterson Institute for International Economics.
    • Handle: RePEc:iie:pbrief:pb14-2
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    References listed on IDEAS

    as
    1. Joseph E. Gagnon & C. Fred Bergsten, 2012. "Currency Manipulation, the US Economy, and the Global Economic Order," Policy Briefs PB12-25, Peterson Institute for International Economics.
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    7. John Williamson, 2011. "Getting Surplus Countries to Adjust," Policy Briefs PB11-1, Peterson Institute for International Economics.
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    Cited by:

    1. Susan N. Houseman & Brad J. Hershbein, 2018. "Understanding the Decline of U.S. Manufacturing Employment," Upjohn Working Papers 18-287, W.E. Upjohn Institute for Employment Research.
    2. Stefan Kawalec, 2015. "The permanent necessity to undervalue the euro endangers Europe’s trade relations," a/ Working Papers Series 1509, Italian Association for the Study of Economic Asymmetries, Rome (Italy).
    3. Kartika, Dwintha Maya, 2015. "The absence of currency-related trade policies in the World Trade Organization (WTO) and its future inclusion," MPRA Paper 72114, University Library of Munich, Germany.

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