Trump administration clears way for new currency tariffs

Bloomberg

The Trump administration is going ahead with controversial new rules that would clear the way for the US to start applying punitive tariffs on goods from countries accused of having undervalued currencies, the Commerce Department said.
The move would give new muscle to US 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 US 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 US 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 US and the Federal Reserve of using monetary policy to weaken the dollar to help spur a quicker recovery in the US.

Currency Manipulation
President Donald Trump has long accused China and other countries of doing the same. Commerce Department officials 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 US 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 US 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.
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 subject of government manipulation, determines that a currency is not undervalued.
“This appears intended as a broad signal to US 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.

China seeks US trade-target flexibility amid virus spread
Bloomberg

Chinese officials are hoping the US will agree to some flexibility on pledges in their phase-one trade deal, people familiar with the situation said, as Beijing tries to contain a health crisis that threatens to slow domestic growth with repercussions around the world.
The agreement sealed January 15 is supposed to take effect in mid-February. It has a clause that states the US and China will consult “in the event that a natural disaster or other unforeseeable event” delays either from complying with the agreement. It’s unclear whether China has formally requested such a consultation yet, but the people familiar with the matter said the plan is to ask for it at some point.
A spokesman for US Trade Representative Robert Lighthizer said Washington hadn’t received any request from China to discuss changes in purchase commitments. Chinese Commerce Ministry didn’t respond to a request for comment.
In the first year of the deal, China committed to buy an extra $76.7 billion of American goods beyond what it did in 2017, and an additional $123.3 billion in the second year. Purchases of agricultural products are particularly important for the livelihoods of American farmers who’ve been hurt in an escalating tariff war with China over the past two years and are a key base of support for President Donald Trump.
Market Decline
Futures prices for soybeans — one of the main commodities Beijing agreed to purchase — are reflecting concern about weaker demand from the world’s second-largest economy. Soybeans traded in Chicago were little changed after nine straight days of declines, the longest losing streak since July 2014.
The death toll from the coronavirus outbreak rose past 360 and total confirmed cases reached almost 17,400, and the Philippines reported the first death outside of China.
Amid the turmoil, Chinese officials are evaluating whether the target for economic growth this year should be softened as part of a broader review of how the government’s plans will be affected by the deadly virus outbreak, according to a separate Bloomberg report on Monday.
For its part, the U.S. hasn’t seen any major effects on its economy from the epidemic, White House economic adviser Larry Kudlow said last week.
“This is principally a public health problem and the pandemic of course is in China, not the U.S.,” Kudlow said Thursday in an interview on Fox Business Network. “Insofar as the economy, we see no material impact.”
Asked if the virus will give the U.S. more leverage in the second phase of trade discussions with the Asian nation, Kudlow said the outbreak is “completely separate from trade, jobs and all the rest.”
“This is an issue of helping them if we can, offering our assistance, engaging with them, this is a humanitarian effort on our part — nothing to do with economic rivalries,” he said.