Column: Currency manipulation is not cheating on trade

John O'Neill

Once upon a time, protectionist forces would complain about dumping. It was the practice, they said, in which our trading partners engaged by selling their products in our market at a price lower than in their own markets. But under world trade rules (then and now), to establish dumping, it was not just a matter of selling in foreign markets at a rate lower than in the home market. It had to entail selling below cost to the detriment of industry of the importing market.

The accusation was most often made against Japan. But all our trading partners were accused on occasion of dumping. Because it was hard to prove, protectionist forces eventually gave up on the allegation. Moreover, free traders (myself included) were prone to defending our trading partners insofar as we would argue that countries like Japan were not so much dumping as they were dealing with a weak currency (which encourages exports and makes imports more costly).

In other words, the strong dollar was buying up imports from Asia and Europe, while the weak Yen and/or weak Euro were incapable of buying up American goods to a strong degree. But leave it to the protectionists, they have since managed to charge that weak currencies are now a form of trade cheating. They call it “currency manipulation” and they paint it in all the conspiratorial imagery they once used to describe dumping.

Indeed, opposition last year to the Trans Pacific Partnership (TPP) was based on its lack of any defense against currency manipulation. And those now who now seek to renegotiate the North American Free Trade Agreement (NAFTA) insist the revised agreement must prohibit currency manipulation.

In a nutshell, the so-called currency manipulation is the practice of one country buying up with its own currency the currency of another nation (or vice versa). This affects the buying power of a nation's currency and usually results in a trade imbalance.

But since President Donald Trump took office, the U.S. dollar has slid against other currencies (even against the peso). Does this mean the United States is engaging in currency manipulation? Or are we only trying to bring down our trade deficits?

The problem with protectionist complaints about currency manipulation is how the argument is framed as if it is to a country's advantage to devalue its currency. Truth be told, what is called currency manipulation is permissible under world trade rules. But do we want to devalue our currency in retaliation to China devaluing the Yuan?

Notwithstanding the recent slide in the dollar, it's still the strongest currency in the world and it is both to our credit and advantage that it remains so. Devaluing currency is inflationary and renders an economy an unattractive place to do business. A trade imbalance, on the other hand, is not the measure of either a strong or weak economy. It is trade itself that strengthens an economy.

Currency manipulation is the new buzz word for protectionist arguments. These arguments should be resisted based on the benefits the United States enjoys from trade and the inherent danger in devaluing our currency that protectionists now suggest we engage in.

John O'Neill is an Allen Park freelance writer.