When Speaker Ryan and Donald Trump meet tomorrow at Washington, they should seek to reconcile dueling agendas. One goal they both embrace is the need for stronger economic growth and more job creation. But the two strong-willed leaders differ vehemently when it comes to assessing whether trade is a positive or negative factor for American workers.
Mr. Trump believes free trade can be wonderfulas he stated in announcing his candidacy in Junewhile insisting that the terms must be fair. Mr. Ryan has long championed free trade as a driver of our growth, jobs, and competitiveness in todays global economy. Trade is good for America, he affirmed in a major speech last year, likewise noting that other countries must play by the rules.
So what is the dividing issue here?
Where the top two GOP figures have diverged in weighing the benefits versus the pitfalls of trade agreements is on the matter of currency devaluation. Mr. Trump never fails to highlight the economic damage imposed through currency manipulation tactics. On this long-neglected issue, he makes a valid point.
They devalue their currencies to such an extent that our businesses cannot compete with them, our workers lose their jobs, Mr. Trump explained during the CNN Republican presidential debate in February. The problem with the Trans-Pacific Partnership trade agreement, according to Mr. Trump, is that it doesnt adequately deal with exchange rate issues among participating countries.
It does not stop Japans currency manipulation, he tweeted in April 2015. This is a bad deal.
Members of Congress on both sides of the aisle find themselves in unity with that assessment. When the text for the treaty was made public in November, Rep. Debbie Dingell, a Democrat of Michigan, released the following statement: The agreements lack of any meaningful protections against currency manipulation means millions of American jobsin the auto industry and many other sectorswill continue to be threatened by foreign governments who attempt to tilt the global playing field in favor of their industries and against the United States.
Senator Portman, Republican of Ohio, announced in February that he couldnt support the current version of the sweeping Pacific trade deal, vowing to continue his efforts to include enforceable provisions against currency manipulation to ensure that foreign competitors dont use their exchange rates to subsidize their exports at the expense of products made by American workers.
Is the complaint about currency manipulation merely a sop to labor unionists and protectionists, an excuse for overpaid American factory workers or less-than-competitive American products? Increasing globalization has clearly shifted the forces of comparative advantage; technology drives companies to relentlessly seek the most efficient ratio of labor and capital.
That, though, neednt mean opponents of currency manipulation are against free trade. They are not just sore losers, afraid to compete against foreign rivals. To the contrary: Its wholly legitimate to acknowledge that sliding exchange rates distort market outcomes in an open global economy and undermine the logic of free trade principles.
As a former Federal Reserve chairman, Paul Volcker, noted in 1992 in Changing Fortunes, a book he co-authored with former Japanese finance official Toyoo Gyohten, unstable exchange rates lead to unreliable prices. In the grand scheme of economic life first described by Adam Smith, in which nations like individuals should concentrate on the things they do best, how can anyone decide which country produces what most efficiently when the prices change so fast? Large swings in exchange rates are antithetical to rational economic decision making, Mr. Volcker concludes, and a symptom of a system in disarray.
If Messrs. Ryan and Trump hope to reach any kind of accord in respect of trade, they should seek to find common cause in developing an appropriate response to the global issue of currency devaluation. Mr. Ryan has always been a strong proponent of sound and stable money; citing his mentor Jack Kemp, he describes it as an important precondition for sustainable, long-run growth.
Sound and stable money, however, cannot be achieved in isolation. As Kemp recognized, the central issue for expanding international trade and worldwide economic growth is the need for international monetary reformincluding revisiting the question of fixed-versus-floating exchange rates.
America is the only country in a position to exercise the global leadership needed to begin constructing a stable international monetary system. Mr. Trump advocates taking on our major trading partners one-by-one, calling them out as monetary manipulators, and his strategy resonates with displaced workers. But we are fast approaching a critical moment for the future of free trade. Its time to think bigger and more strategically.
Governor Pence of Indiana may have proposed the beginning of a solution. Speaking before the Detroit Economic Club in 2010, he linked sound monetary policy with the restoration of free market principles. Noting that a debate is starting anew over an anchor for the global monetary system, Mr. Pence stated that he agreed with those who encouraged that we re-think the international currency system, including the role of gold.
For Messrs. Ryan and Trump, its a golden opportunity.