Why small businesses don’t like the Trans Pacific Partnership agreement

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(This post originally appeared on The Washington Post)

I recently met in San Diego with a group of small and mid-sized manufacturing executives and business owners from around the country and the topic of international trade came up.

“I don’t like the trade agreement with Asia,” one person complained. “It’ll be bad for my business.” Many in the group agreed. This surprised me. Free trade seems to be a good thing for businesses, doesn’t it? Was I missing something?

The Trans-Pacific Partnership, or TPP, has been a hot topic of discussion since it was originally agreed on by the United States and 11 other Asian countries back in October, 2015 (the agreement still needs congressional approval). The biggest political issue has been jobs. Concerned that free trade would result in the export of American jobs, and to appeal to working class voters, Donald Trump came out against the agreement (so did Hillary Clinton). But it’s not just the president-elect who opposes the trade pact. I’ve met many executives and business owners – like the ones in San Diego – who also have serious reservations about the deal. Their concerns have little to do with the loss of jobs. It’s something bigger.

The reason is currency manipulation. This is when a foreign government (or its central bank) buys or sells currencies from other countries, in order to either push up or down the value of its own currency.

“Think about it,” one member of the group said. “If a country wants to make its goods cheaper all it has to do is push down its exchange rate. It’s similar to what’s been going on with the British pound since Brexit, although I don’t think the British government planned this.”

Since England voted to move out of the European Union, the value of the pound against the dollar has decreased by about 14 percent. That’s not a great thing for British businesses looking to buy goods overseas. But it certainly makes their own goods much, much cheaper for overseas customers. And artificially cheaper products made by foreign competitors as a result of currency manipulation is exactly what scares U.S. businesses like the group meeting in San Diego.

And that’s a shame because the TPP includes many good provisions for U.S companies. It relaxes or in some cases eliminates tariffs. It makes it easier to gain access to the markets of 11 countries that represents about 40 percentof the world’s economy. It puts into place a process for settling disputes and protecting intellectual property. It relaxes rules on foreign investments and eases restrictions on e-commerce. When looked at from a business perspective, it opens up many opportunities for U.S. companies to grow in Asia and could offer a significant hedge against growing competition from China.

But the TPP doesn’t address the enormous issue of currency manipulation. As recently as this past May, the U.S. Treasury Department warned five countries that they are on a “watch list” of potential targets for currency manipulation. Included in this list is Japan, one of our largest partners in the TPP. “If the countries in question do not act,” says this CNBC report. “The president can enact a variety of penalties, including cutting off the offending countries from Overseas Private Investment Corp. funding; asking the International Monetary Fund, which is charged with preventing currency manipulation, to step in; or reconsider whether the offending country should be engaged in trade agreements.”

This election year we’ve heard a lot about limiting free trade to protect jobs. And in 2017 the debate will likely continue. Politicians who oppose the deal can get public support using this argument. But for business owners like the ones I met in San Diego, particularly small companies looking to expand in Asia, the loss of jobs is not their biggest concern. It’s the potential risks they face unless the TPP is amended to address those governments who are tempted to manipulate their own currencies in order to make their products cheaper than their American competition.

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