Exchange rates are established in currency markets, created by businesses trading through major financial institutions. Unfortunately, China and Japan have blatantly manipulated these markets, without a credible U.S. response and with ruinous consequences for U.S. workers. Japanese Prime Minister Abe has managed to push down the yen 23% from its value last August, and that is worth more than $2,000 on every Toyota ( TM) sold in the U.S. The Japanese automaker can put that cash into additional vehicle content, advertizing, and discounts, making a mockery out of fair competition with Ford ( F) and GM ( GM). Similarly, troubles in southern Europe have motivated investors to move cash into U.S. Treasuries and stocks and suppressed the value of the euro against the dollar -- to the great advantage of German exporters. Paradoxically, austerity policies for the Mediterranean states, championed by Angela Merkel, are doing more to boost German exports than to resurrect those ailing economies.
Unfortunately, U.S. imports exceed exports by another $500 billion and that reduces demand for U.S.-made goods and services. With multiplier effects, the trade deficit is slashing at least $800 billion off GDP. Many U.S. workers are pushed from high-paying jobs, not because they can't compete, but because the administration fails to take a tough stand against currency manipulation. And as many as 8 million workers can find no work at all, because of misguided U.S. trade policies, and wages remain depressed. Domestic manufacturers have petitioned President Obama and his predecessors to take action, and economists spanning the ideological spectrum have suggested substantive measures that could combat currency manipulation and misaligned exchange rates. The administration has complained to China and Japan about currency manipulation, but after years of U.S. inaction, they simply ignore U.S. warnings. The administration continues to negotiate trade pacts that open U.S. markets to foreign competition but lack specific rules and penalties to address currency manipulation. Until an American president is willing to ensure free trade in goods is matched by free trade in currencies, the U.S. economy will endure anemic growth and workers will suffer high unemployment and low wages. Follow @PMorici1 This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.