⚠️ Trump Has New Plan For New Currency Tariffs» Be Ready Currency Reset - financialanalysis


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Wednesday, February 19, 2020

⚠️ Trump Has New Plan For New Currency Tariffs» Be Ready Currency Reset

Trump Administration Clears Way for New Currency Tariffs.The Trump administration is going ahead with controversial new rules that would clear the way for the U.S. to start applying punitive tariffs on goods from countries accused of having undervalued currencies, the Commerce Department said Monday.
The move would give new muscle to U.S. complaints about currency manipulation that have in the past targeted economies like China and Japan and thus turn the more than $6 trillion-a-day global currency market into a new battlefield in the Trump administration’s trade wars.It would allow the U.S. to impose countervailing duties on goods from countries accused of manipulating their currencies, even in cases where they were not officially found to be guilty of that by the U.S. Treasury. Past administrations have resisted calls to take such action from Congress and some industries for fear it would lead to tit-for-tat currency wars.
In the wake of the global financial crisis a decade ago, policy makers in countries such as Brazil accused the U.S. and the Federal Reserve of using monetary policy to weaken the dollar to help spur a quicker recovery in the U.S.
Currency Manipulation
President Donald Trump has long accused China and other countries of doing the same. Commerce Department officials on Monday presented its decision as a delivery of a 2016 campaign promise to tackle currency manipulation around the world.
“This Currency Rule is an important step in ensuring that unfair trade practices are properly remedied,” said Secretary of Commerce Wilbur Ross in a statement. “While successive administrations have balked at countervailing foreign currency subsidies, the Trump Administration is taking action to level the playing field for American businesses and workers.”The new rule, which was opposed by the Treasury Department when it was first proposed in May 2019, would allow U.S. companies to file complaints with the Commerce Department over specific imported products by treating undervalued currencies as a form of unfair subsidy. It would also give the administration the power to self-initiate cases should it so choose, however, potentially making the U.S. government plaintiff, judge, jury and executioner in currency fights.
A Treasury spokeswoman did not immediately reply to request for comment.
The Commerce Department put some caveats on its powers, saying it would “not normally include monetary and related credit policy of an independent central bank or monetary authority” in determining whether foreign governments had acted inappropriately to weaken currencies. “Commerce will seek and generally defer to Treasury’s expertise in currency matters,” it said.
‘Broad Signal’
But its statement left room for unilateral action by Commerce -- even if Treasury, which issues a twice-yearly report identifying currencies that are artificially weak or the subject of government manipulation, determines that a currency is not undervalued.
“This appears intended as a broad signal to U.S. trading partner countries that any significant weakening of their currencies relative to the dollar could invite retaliatory actions,” said Eswar Prasad, a Cornell University economist and the author of books on the rise of the dollar and Chinese renminbi.
The new rule appeared to go against guidance from a Treasury official, who said last June that the framework of any currency assessments by Commerce would be consistent with its semi-annual foreign-exchange report to Congress.
In a question and answer section attached to Monday’s announcement, the Commerce Department said it would preserve the final power to make any determination about whether a currency’s value presented an unfair subsidy for that country’s exporters. The statutes governing Treasury’s mandate to monitor currencies and Commerce’s power to impose anti-subsidy duties had different criteria, Commerce said“Hence, the two processes may result in different outcomes as to a particular country, theoretically including the possibility of applying countervailing duties to a country that does not meet the criteria for designation under the laws Treasury administers,” the statement said.
Commerce also said the new rule would allow it to specifically impose currency-related tariffs against China even if Treasury did not label it a currency manipulator. The Treasury last month lifted a designation of China as a manipulator just days before Trump signed a “phase one” trade deal with China that includes language on currencies, though the new rule appears to give the U.S. powers to act that go beyond that included in last month’s deal.
The final rule announced Monday drew concern from some former U.S. officials.
“This is a unilateral policy which will alienate countries around the world,” said Mark Sobel, a former Treasury official. It may also violate the U.S.’s World Trade Organization commitments, Sobel said, although the Commerce Department insisted in its statement that “there is no WTO rule that bars the imposition of countervailing duties on subsidies conferred through currency practices.”It also prompted warnings that the rule marked another step in Trump’s efforts to weaponize the dollar after he previously set out to talk down its value and blame the Federal Reserve for causing it to strengthen, to the detriment of U.S. manufacturers and other exporters.
The new rule set vague enough criteria for determining a currency’s proper value that it would allow the U.S. to easily take action if it so chose, Prasad said.
”While not explicitly articulating a weak dollar policy, the Trump administration seems to be signaling that it will take steps to offset any strengthening of the dollar relative to the currencies of its trading partners,” he said.U.S. Proposes Tariffs on Nations With Undervalued Currencies,The Trump administration is proposing tariffs on goods from countries found to have undervalued currencies, in a move that would further escalate its assault on global trading rules.
The proposal, laid out in a Federal Register notice released on Thursday, would let U.S.-based companies seek anti-subsidy tariffs on products from countries found by the U.S. Treasury Department to be engaging in competitive devaluation of their currencies. Currently no country in the world meets that criteria.
But it also sets a broader standard by focusing on the “undervaluation” of currencies.
President Donald Trump has long threatened to label China a currency manipulator and his administration has been examining how to take a more aggressive approach to what is now a largely technical exercise by Treasury to determine whether any currency manipulation has taken place.“This change puts foreign exporters on notice that the Department of Commerce can countervail currency subsidies that harm U.S. industries,” Commerce Secretary Wilbur Ross said in a statement. “Foreign nations would no longer be able to use currency policies to the disadvantage of American workers and businesses.”The notice released by the Commerce Department, which administers the quasi-judicial process that determines the imposition of what are known as “countervailing duties,” says it would defer to Treasury in determining whether any currency was deemed undervalued.
It also specifically says the move is not aimed at any central bank action that results in currency swings.
Trade War Scoreboard Shows U.S. and China in Dead Heat
“In determining whether there has been government action on the exchange rate that undervalues the currency, we do not intend in the normal course to include monetary and related credit policy of an independent central bank or monetary authority,” Commerce said.
The move would be a major departure from past U.S. tariff policy, according to Scott Lincicome, an international trade lawyer and adjunct scholar at the Cato Institute. Over the past decade American companies have tried multiple times to get the Commerce Department to count a weak currency as a subsidy.
“It’s opening the door to additional tariffs on any goods from any country found to have an undervalued currency,’’ Lincicome said.
Resurgent Hawks
According to people familiar with the administration’s internal deliberations, the move to include the new currency tool has been pushed by Ross and White House trade adviser Peter Navarro since the early days of the Trump presidency.
The issue had been lying dormant for awhile before it rose to the top of the Trump team’s trade discussion again in recent weeks, a person familiar with the matter said. The inter-agency debate leading to the issuing of the proposal was heated, the person said.
That it is now advancing is a sign of the resurgent power of trade hawks in the administration as the White House ramps up pressure on China for a trade agreement.
This month, the sides were close to a deal when the talks hit an impasse, prompting Trump to increase tariffs on $200 billion of Chinese goods and threaten to slap duties on another $300 billion, as well as add Chinese telecom giant Huawei Technologies Co. to a blacklist.
Democratic lawmakers have also pushed for such changes to trade law to address currency concerns for years but never garnered enough support to pass legislation.
In 2010 testimony to a congressional commission on dealing with China, Robert Lighthizer, now the U.S. trade representative, pushed for the same. “We should respond to China’s currency manipulation,’’ he said. ‘’The U.S. government should treat currency manipulation as a subsidy.’’
Trade Deals
Currency policy has been a central tenet of trade deals that Trump has struck with Mexico, Canada and South Korea, and it’s expected to be part of an agreement with China, should one be reached.
The yuan has weakened about 8% against the dollar over the past year as the U.S.-China trade was has taken off, offering Chinese exporters a cushion against Trump’s tariffs.

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