Others say

Keep Congress out of currencies

The question of how much is a dollar worth in yuan is easy to answer. Monday, it was 6.20 yuan. How much a dollar should be worth in yuan also has a simple answer: Nobody knows -- and nobody can.

It's like asking how much a gallon of gasoline or an hour of a lawyer's time should cost. There is no correct number, except whatever price the forces of supply and demand yield. Whether the Chinese currency is undervalued is the subject of much dispute. And since the Beijing government doesn't let the value rise or fall continually in response to market conditions, the question is never settled.

But a lot of people in Congress think they have a good idea what the yuan should trade for. They accuse the Chinese of deliberately holding down the value of their money to make their exports cheaper. The members of Congress are pushing legislation that would order the U.S. government to punish foreign countries that engage in this sort of activity, which the sponsors regard as unfair to American companies and workers.

Last week, on a bipartisan 78-20 vote, the Senate passed a bill requiring the Commerce Department to investigate allegations of currency manipulation and impose import tariffs against goods from the countries found guilty. The Senate is also expected to vote on an amendment to the Trade Promotion Authority bill sought by President Barack Obama, who warns that the addition could be fatal to the Trans-Pacific Partnership talks.

That's one reason these proposals are a bad idea. A second is that they attack a problem that is largely or entirely in the past. The yuan has appreciated some 30 percent since 2010, to the point that the International Monetary Fund is expected to conclude that it is no longer undervalued. "There is not really any case right now to say that China is manipulating its exchange rate," Brookings Institution economist David Dollar told The Washington Post.

A third reason is that the alleged overvaluation of the yuan has played a small role at most in our chronic trade deficits with China. Economist John Cochrane of the Hoover Institution at Stanford University says that deficit is the flip-side of a surplus, in capital. "They're financing our budget deficit, and they're buying our stocks," he notes. If the Chinese are going to invest more here than we invest there, he explains, they need dollars, which they get by selling more goods to us than they buy. Foreign investment in this country does not destroy jobs. It creates them.

The Chinese appetite for U.S. assets helps explain why the trade deficit has persisted even as the yuan has risen against the dollar. While the yuan was appreciating between 2005 and 2008, U.S. imports from China might have been expected to fall. In fact, they not only rose but rose faster than U.S. exports to China. So much for that solution.

The attempt to dictate what other countries may do in matters that affect the value of their currencies could backfire in more ways than one. The Federal Reserve's repeated attempts to boost economic growth through "quantitative easing" -- expanding the money supply -- could be interpreted by our trading partners as a concerted effort to increase our exports. If we penalize them for pushing down their currencies, why wouldn't they penalize us for pushing down ours?

Fed Chairman Janet Yellen recently told the Senate Banking Committee, "I would really be concerned with a regime that would introduce sanctions for currency manipulation into trade agreements when it could be the case that it would hamper or hobble monetary policy." Her predecessors Alan Greenspan and Ben Bernanke have issued similar warnings. The Fed has enough challenges without Congress giving foreigners a say in what it does.

Multilateral trade agreements are a sensible and proven way of opening up markets abroad and giving consumers in the U.S. and elsewhere access to more and cheaper goods and services. But they are hard enough to forge even when the focus is on matters such as import barriers and investor protections.

Expecting them to also solve currency disputes is not likely to work -- but it may kill trade deals that would be good for exporters, consumers and the U.S. economy as a whole. Congress should give up the idea that Washington knows the right value of every currency on the planet, and keep its eyes on the prize.

Commentary on 05/21/2015

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