August 17, 2017
In an article on the effort to renegotiate the terms of NAFTA, the NYT noted the Trump administration’s plan to put in language that would prohibit currency management. (The article uses the term “manipulation,” which implies an action being done in secret. In fact, large-scale efforts to affect the value of a country’s currency will almost always be open, since they are almost impossible to conceal.) The piece then notes that since both Canada and Mexico have freely floated their currencies for decades, this is a “symbolic gesture.”
This is not true. Many people in trade debates have claimed that it is impossible to have currency rules in a trade agreement. They have argued that it is impossible to identify steps to manage currency and distinguish them from the normal conduct of monetary policy. Having solid language on currency management in a revised NAFTA would show that it is possible. Also, since the original NAFTA served as a model for many future trade deals, a currency provision in a revised NAFTA could be the basis for similar provisions in other trade deals.
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