TPP delayed as US auto makers push for currency clause

TPP delayed as US auto makers push for currency clause

As the year’s end deadline for the Trans-Pacific Partnership (TPP) deal nears, US lawmakers press to include a provision on currency manipulation – in part to support US automakers.

Including Japan into the Trans Pacific Partnership trade deal has brought the issue of currency manipulation back into the discussion, raising significant concerns among US lawmakers. In recent weeks key Congressional members have argued for the need to include a provision on currency within the framework of the TPP deal.

As talks continued in Salt Lake City among the member counties, the US conducted its fourth parallel bilateral negotiation with Japan on issues specific to their relationship. Agriculture and insurance both remain major challenges, but recently the longstanding debate on the competition in auto markets has become intertwined with exchange rate concerns. Automakers in the US and lawmakers representing industrial states like Michigan want to limit the ability of Japan to artificially depreciate the yen, which makes their auto exports more competitive in the US and in other markets.

From October 2012 to this past month, imports from Japan to the US have declined 3.2 percent. This marks the “longest 12 month drop since the index fell 3.2 percent between June 2001 and June 2002,” according to the Bureau of Labor Statistics (BLS).

This drop in import prices has roughly followed the progress of “Abenomics” – the ambitious set of reforms initiated by Prime Minister Abe in Japan. Among those reforms has been an aggressive bond buying program by the Bank of Japan. Combined with a renewed effort to jumpstart Japanese inflation, the yen has depreciated significantly, making Japanese products cheaper and more competitive abroad. Measured by the same BLS indicator report, imports of auto vehicles, parts, and engines has declined 1.4% over the same 12 month period (although this also includes imports from other countries).

These recent trends have underscored competitiveness concerns. A large number of US lawmakers see the monetary efforts of Japan as artificially undervaluing the yen to buoy exports. In June of this year, 230 House members sent a letter to President Obama asking for a currency provision in TPP to “combat these unfair trade practices.”

Abenomics weakens the yen against the dollar, which puts competitive pressure on US carmakers. A currency clause in the TPP might help. (Source: Capital Economics)

Abenomics weakens the yen against the dollar, which puts competitive pressure on US carmakers. The industry hopes a currency clause in the TPP might help. (Source: Capital Economics)

In September, sixty senators, led by Debbie Stabenow (D-MI), urged Secretary Lew and US Trade Representative Michael Froman to “include strong and enforceable foreign currency manipulation disciplines to ensure these agreements meet the high standards our country…deserve[s].” The Chairman of the House Ways and Means committee, Dave Camp (R-MI), also warned of declining support for TPP in Congress if the manipulation concerns go unaddressed.

The desire to include such a provision has proved to be broadly bipartisan and has been backed by powerful auto interest groups. This could have several implications for the ultimate success of TPP.

Firstly, the issues might endanger the possibility of gaining the so-called “fast track” authority for a trade bill, which stipulates a simple up or down vote. Without this authority, the TPP deal could become hung up in Congress. Secondly, the inclusion of a currency provision could undermine the position of the US itself. Ambassador Froman has cautioned that, given the similarities between what the Bank of Japan is doing and the Federal Reserve’s own bond buying program, a currency provision could put the US into a “defensive position.”

Tacking too heavily toward a currency rule might limit US policy in the future and could water down market opening measures, if access was to be tied to current account balances. The TPP members have consistently reiterated their desire to close the deal by year’s end but with that deadline fast approaching, issues such as this make it likely that completion will be delayed.

Categories: North America, Politics

About Author

Ned Pagliarulo

Ned Pagliarulo works for a Japanese press company, reporting on economics and government statistics. Ned received a BA in History with a minor in Japanese from Georgetown University in 2012.