Introduction
Responding to widespread pressures from the American public, many members of Congress are seeking to add language to the 'fast-track' or Trade Promotion Authority (TPA) legislation requiring that tough rules against currency manipulation be negotiated in the Trans-Pacific Partnership (TPP) agreement. This approach is highly unlikely to fix America's trade deficits for the following reasons:- The TPA bill simply repeats ineffective language similar to what has been in the IMF's rule books for years.
- It does nothing to provide an enforcement mechanism.
- It focuses only on currency manipulation by TPP members, totally ignoring the much bigger and more important problem of overall currency misalignment.
As promised in my previous post, an alternative policy is
presented here that avoids the above problems and offers real promise of
increasing the international competitiveness of America's factories and
workers, stimulating growth and employment, and bringing America's imports and exports
back into balance.
These highly desirable goals could be accomplished by
moderating the inflow of foreign capital to levels consistent with America's
need for foreign financing and with the economy's ability to use such capital
efficiently. With this, Congress could prevent the overvaluation of the dollar caused by
excessive foreign demand for dollars and dollar-denominated assets.
