Categorized | Currency

The Power of Currency Valuation and the Impotency of TPP

Toyota is moving production of the Lexus to the U.S. (Kentucky) for the first time.  Why? Because of currency values.  They can’t count on Japan’s low price yen all the time.  So they’re moving here.

Toyota also wants to shift more production from Japan to overseas markets to better insulate itself from the currency gyrations that have wreaked havoc on its bottom line in recent years.TPP-banner

Its a big decision for Toyota, which tries to keep its production in Japan, and help the country continue being an export powerhouse as part of their multi-decade industrial plan.  But currency is the issue.

Pause and think about this.  Think about all the possible factors that could cause the decision.

We hear that the U.S. is not competitive internationally because of regulation, taxes, workforce development, education level, etc.  But in the international competition arena the value of currency is primary.  It exceeds so many other factors.

You will hear people attribute the Toyota decision to all kinds of small-bore, baloney factors.  But the issue is currency valuation.  If Japan cannot keep the yen consistently low (undervalued in relation to its equilibrium price), then it is too risky to produce and export from there.

The U.S., with the worst trade performance of any country in the world, has a trade surplus with Brazil.  Brazil!   That emerging and growing economy.  (This is not a misprint.) Why?  Because Brazil’s real (their currency) has appreciated substantially in the last three years.  And despite the fact that Brazil’s border charges and regulations to get goods into the country are still laughably onerous.

That’s why currency manipulation is on the rise.  Because currency valuation is really a big deal.  So big that governments engage in currency price fixing schemes across the globe.  It is a major part of bringing China from the dark ages to challenging U.S. global hegemony (in the process of pulling our industry away) in 20 years.  20 years!  Astounding.

The Peterson Institute for International Economics (PIIE) recently reported that 60% of the world’s countries now have persistently undervalued currencies.  The mainstream globalist PIIE has gone from lukewarm on addressing currency problems a few years ago… to holding a recent conference called “Currency Wars”.  They also found, in the Currency Wars conference, that the WTO and IMF simply were not going to respond to requests to resolve the issue.  So unilateral and coalitions of countries would have to force the issue via other means.

That’s why its imperative to: (1) pass the Currency Reform for Fair Trade Act in the House and Senate so we can place countervailing duties on manipulators; and (2) include currency reform in any future trade agreements like the Trans Pacific Partnership.

So even if you are a free trader waiting on pins and needles and with baited breath for the Congress to pass the TPP, you have to conclude that the TPP is not worth it without a currency fix.  The TPP countries include serial manipulators Singapore and Japan. The TPP is a “docking agreement”… meaning that any country can join if the country simply agrees to its terms and signs.  Congress will not have a say.

If TPP passes without a currency fix, then let’s say we get a 5% tariff concession.  Japan has already lowered its currency prices by 20% in the last three months.  As Paul Volcker said, “In five minutes, exchange rates can wipe out what it took trade negotiators 10 years to accomplish). Then other manipulators can join the TPP later, get the trade benefits, and be immune from frustrating the whole agreement through currency price fixing.

All Congress or the Administration will be able to do is issue “Sternly Worded Letters” to the culpable countries in a frenzy of impotence.

If you are a free trader, the math compels you to require a currency fix before any TPP is agreed to.


One Response to “The Power of Currency Valuation and the Impotency of TPP”

  1. maggie says:

    If the manipulators can manipulate, then the out-manipulators can simply out-manipulate the manipulators.


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