Arbitrary calculations should not be used as a basis for imposing tariffs
The editorial board
© Bloomberg
Donald Trump’s obsession with currency manipulation has reached a new high. The president’s latest tweet on the subject last week suggested the US should “match” what he called a “big currency manipulation game” played by Europe and China. Worryingly, his outburst followed recent moves by US institutions to focus more on currency manipulation. These come on top of Mr Trump’s frequent attacks on the Federal Reserve for keeping interest rates too high, and his nomination of a prominent Fed critic, Judy Shelton, to its board. Using the dollar as a weapon to boost trade will lead to further unwelcome politicisation of trade policy and risk rising retaliation.
Mr Trump’s latest accusations come just a few weeks after he took aim at European Central Bank president Mario Draghi. He tweeted that Mr Draghi was “unfairly” manipulating the euro, adding that “they have been getting away with this for years, along with China and others”.
His tweets are not, however, in isolation. In May the US commerce department issued a proposal that would see sanctions imposed on countries deemed to be manipulating their currencies. This would be done as part of countervailing duties — a process used to combat unfair subsidies by trading partners — and would involve the US Treasury providing an estimate of fair value for individual currencies.
The US Treasury’s latest report on currency manipulation also cast its net wider. The scope of surveillance was extended, switching from assessing the country’s 12 largest trading partners to those with a bilateral trade surplus with the US of $40bn or more, adding an additional nine countries to the list.
Two of the three thresholds for being deemed a currency manipulator were also lowered, making it more likely that countries meet the conditions. Despite these changes no country met all three criteria, but China remained on the US monitoring list as did Japan, South Korea and Germany. Italy and Ireland joined the latter on the list, as well as three other countries that also use the euro.
Floating currencies such as the euro and the yen cannot meet one of the Treasury’s three criteria for manipulation: persistent, one-sided exchange rate intervention. The proposed addition of currency valuations — where no single agreed methodology exists and estimates can vary widely depending on what data are used — would be a way around this issue for Mr Trump.
Currency provisions are also creeping into trade deals under Mr Trump. The US-Mexico-Canada Agreement includes the first legally enforceable commitment on exchange rate flexibility and disclosure of future intervention. But it does not contain any penalties for perceived currency manipulation, nor does it have any practical implications given that the three currencies float freely. The US-Korea Free Trade Agreement also includes some currency provisions, but these are not legally binding.
Tying currency manipulation to trade policy has some rationale — currency weakness improves competitiveness and can quickly offset any tariffs. But it ignores the role of internal, and often structural, savings and investment decisions. This is not to mention the role of interest rates on capital flows, especially the influence of US monetary policy on financial conditions around the world. It also appears oblivious to the role of US fiscal policy in the widening trade deficit.
Currency manipulations can undoubtedly distort trade and growth. But imposing tariffs on the basis of arbitrary calculations of currency valuations is not the way to go.
0 comments:
Publicar un comentario