A key to boosting the U.S. economy?

After spending f ive long years negotiating the Trans-Pacific Partnership trade agreement, the Obama administration is now pushing for the fast-track authority from Congress that would make it easier to get the final deal approved. One serious problem is that the TPP is not likely to include rules on currency, which is leading lawmakers from both parties to consider opposing the agreement. They are right to be concerned.

A good deal, from the American perspective, would have rules preventing countries from strategically depressing the value of their currency. Japan, Malaysia and South Korea have all been identified as engaging in such manipulation. While this point may seem obscure, the cost of the dollar relative to other currencies is hugely important in determining the size of our trade deficit, which is in turn a major obstacle to growth and employment.

To understand the relationships at work here, imagine that the dollar suddenly rose in value by 20% against the Vietnamese dong and the Japanese yen. Since we sell our goods and services in dollars, people living in Vietnam and Japan would then need 20% more of their currency to buy products from the United States.

This means that a Ford or General Motors car produced in the United States would cost 20% more for a person living in Vietnam or Japan. The same would be true of Microsoft’s software or any other item that we might try to sell overseas. Naturally when our prices rise, we expect that people will buy fewer goods and services from us.