There's been a lot of talk lately from former Obama administration officials like Leon Panetta and Robert Gates about what they perceive to be "passivity" or blunders on foreign policy matters by the president.
Their charges are imminently debatable. But there's an international policy matter on which the administration has been far too passive, and its inaction may be dooming the productive sector of the economy -- not to mention the American middle class -- to a fate it doesn't deserve.
I can sum it up in two words: currency manipulation. There are millions of American jobs at stake. It's well within the powers of the U.S. Department of the Treasury to deter it and do something about it right now. Let me explain.
Treasury's semi-annual Report to Congress on International Economic and Exchange Rate Policies is due next week. And while casual political observers might not set their watches to its release, it's a big deal. This report is the White House's twice-a-year at-bat wherein it can take a swing at currency manipulators -- those governments that deliberately devalue their own currencies, effectively subsidizing their exports by taxing incoming U.S. goods. You can see how this costs us manufacturing jobs. We export less and import more than we would under a truly functioning free market.
But if the upcoming report is anything like the 11 that came before it during this administration's watch, you or I could dictate its contents. Their contents don't change much.
Despite ample evidence, Treasury always finds a way to wriggle out of using the "M" word: Countries like China and Japan obviously manipulate their currencies. They keep a finger on their scales when they face the United States across the trade table. Under the law, if Treasury designates a country as a "manipulator," it can take steps to deter that behavior.
Here's how Treasury avoided using the word "manipulate" in April, the last time it issued its exchange report:
China has continued large-scale purchases of foreign exchange in the first quarter of this year, despite having accumulated $3.8 trillion in reserves, which are excessive by any measure. This suggests continued actions to impede market determination.
Hmm. Large foreign exchange reserves? Check. How about China's trade balance? Where does that stand with the United States, the world's largest economy and the world's most open market?
Through August 2014, it's $10 billion higher than during the same time period in 2013. America ran up a $318 billion goods trade deficit with China that year, an all-time record, and we're on pace to top it again.
Japan isn't much different. It too runs a large trade surplus with the United States. and government officials there have made no secret of their efforts to weaken the yen, which has lost 30 percent of its value against the U.S. dollar over 18 months.
Now admittedly, currency manipulation is not a conversation a lot of families have at the dinner table. It's hard to explain exactly how a devaluation of China's yuan -- a form of currency that a lot of Americans have never heard of, much less handled -- puts your neighbor's job in jeopardy. But it's an economic policy matter that can determine the fates of entire communities across our nation.
Independent economists say currency manipulation has pushed U.S. account deficits $200 billion to $500 billion per year higher than where they would otherwise be. Others point out that if the value of the world's currencies was determined by the market -- that is, if global currency manipulation came to a halt -- the resulting rebalancing would reduce the U.S. trade deficit by up to $500 billion in three years, increase U.S. GDP by $720 billion during the same period, and create 5.8 million American jobs.
That would mean a lot to the millions of Americans who lost middle-income manufacturing jobs over the last 15 years to outsourcing and impossibly cheap imports; to those who remain out of work; and to those who, in 2014, now work for less.
Under current law, the exchange rate report and Treasury responses are the last line of defense against currency manipulation for America's manufacturing workers. I've written to Secretary Jack Lew, urging him to use the "M" word and embrace this opportunity to create more American jobs by guaranteeing that level playing field. If the Obama administration wants a true manufacturing resurgence, this is one of the best ways to achieve that goal.