Joseph E. Gagnon:
Why Currency Manipulation Matters: Currency manipulation (CM) by foreign countries has become a major part of the debate over Trade Promotion Authority (TPA) in Congress. Lawmakers opposed to TPA have charged that China’s efforts to keep the value of its currency down in order to expand exports contributed to US job losses since the turn of the century. Previously, Fred Bergsten and I raised the possibility of including currency chapters in trade agreements as one of several possible strategies for countering CM. This post, however, focuses exclusively on the costs of CM to the US economy.
Some observers describe the cost of CM entirely in terms of jobs lost for US workers; others dispute the notion that CM has any effect on US employment. But the truth is more complicated than these simple nostrums.
Economic circumstances determine whether CM has any effect on total employment. In the recent past [when the economy was in a deep recession], CM held down US employment to a major extent. In the near future [when the economy has fully recovered], CM probably will have a negligible effect on employment.
However, CM imposes costs on the US economy even when we are at full employment. These costs are roughly comparable in magnitude to all of the gains that are projected from trade agreements with Asia-Pacific countries. ...