The Senate is in the process of debating whether to grant the president trade promotion authority (TPA), which would allow Congress to consider trade agreements under “fast track” procedures. Some senators would like to address currency manipulation — artificially reducing the value of a country’s currency to gain an export advantage — during the TPA debate. They propose adding an amendment that would designate currency undervaluation as a subsidy for purposes of calculating margins in countervailing duty (CVD) cases. This would authorize the Department of Commerce to impose CVD duties even when no other subsidies are alleged, thus further restricting imports. Such an approach would be harmful to the economic interests of the United States and appears destined to violate World Trade Organization (WTO) rules. The amendment should be rejected.

The effects of currency manipulation can be counterintuitive. A shift in exchange rates changes a country’s “terms of trade,” which is an expression used by economists to describe the ratio of a country’s export prices to its import prices. From a U.S. perspective, if another country sets its currency at an artificially low level relative to the dollar, the U.S. terms of trade will improve. The United States will be able to obtain a greater quantity of imports for the same quantity of exports. Exporting the same number of airplanes and soybeans as before will pay for the importation of larger quantities of shoes, coffee and flat-screen TVs.