Trade deal wouldn't stop currency games: Economist

What's inside TPP?

Much of the free trade agreement President Barack Obama is negotiating with 11 potential partners remains under wraps, but Vice President Joe Biden's former chief economist and economic adviser said Monday it will fail to prevent currency manipulation.

"What I do know isn't in there is a chapter on enforceable currency discipline, that is, actions that would prevent the signatories to the deal from taking action to suppress the value of their currency," Jared Bernstein told CNBC's "Squawk Box." "I think that's a big omission and a big problem with this trade agreement."

The Trans-Pacific Partnership would create a new free trade pact among the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

Obama has found common cause with Republicans when it comes to the TPP, but many Democrats believe it will hurt American workers.

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The impact of currencies showed up the April jobs report on Friday, said Bernstein, a senior fellow at the Center on Budget and Policy Priorities. While manufacturing added over 200,000 jobs, payroll growth in the sector has been roughly flat in 2015, he noted. Bernstein attributed that trend to the run-up in the dollar.

"This currency issue is not just some sort of minor thing that you can disregard. It's actually important," he said.

Bernstein said the Federal Reserve and Europe Central Bank's quantitative easing programs should not be viewed as currency manipulation because the goal of those programs was to stimulate ailing economies. Those policies create a corresponding fall in the relative value of the regions' currencies, a net benefit to exports.

Instead, he said, the TPP should tackle currency manipulation as defined by entering a foreign market and using trade surplus to buy massive amounts of foreign currency.

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"Ask yourself why China holds about $4 trillion of currency reserves," he said.

Also on the show, Jim Nussle, former director of the White House's Office of Management and Budget under President George W. Bush, noted that the last few presidents have looked at the data and decided to expand the growth of trade. Trade deals typically lower the barriers to foreign markets, and that provides a reason to support the TPP in general even without reading it, he contended.

"I generally believe any time you can open up your markets in a fair way, that you gain from that. We create jobs from that. We create economic activity from that," he said.

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Bernstein took issue with the idea that opposition to TPP can be chalked up to simple protectionism, saying it is a 29 chapter deal that contains both protectionist measures and free trade initiatives.

"It's a lot more complicated than what you read in the elementary textbooks," he said.

He said supporters of the TPP should not conflate trade and globalization—which he called positive forces for the most part. Instead, trade agreements are complex sets of rules that can be thought of as handshakes among investors on both sides.

"You really have to know what's in the deal before you say, 'I like this because it says trade on it,' which I'm afraid is a very simplistic analysis that I'm hearing much too much of these days," he said.