Tags: Donald Trump | China | currency | Peter Navarro

London Telegraph: How Will Trump Tackle Currency Manipulators?

London Telegraph: How Will Trump Tackle Currency Manipulators?

(AP)

By    |   Wednesday, 01 February 2017 12:24 PM

President Donald Trump’s campaign pledge to help U.S. workers with better trade policies included accusations that countries like China were fixing their currencies to make their products cheaper to American consumers.

Countries that ship lots of goods to the U.S. but don’t buy as many American products are most likely to face allegations of currency manipulation. That means countries like China, Germany and Japan are potential targets.

“The problem is it can be hard to tell when a country is manipulating exchange rates,” the Telegraph reported. “When an economy is weak the central bank often cuts interest rates to stimulate growth, with the aim of hitting an inflation target. But cutting rates also devalues the currency and imports inflation, while also making exports more competitive — which could be a policy aim in itself.”

Trump hired Peter Navarro as director of the National Trade Council to help tackle this issue as part of renegotiating commercial agreements between the U.S. and other countries.

Navarro this week singled out Germany for profiting from a “grossly undervalued” currency, while Trump said Germany, China and Japan are “global freeloading” from weak currencies. Germany rejected the claims.

But the Trump administration isn’t the first to accuse other countries of foreign-exchange shenanigans. The Treasury Department under President Barack Obama in October published a report that named China, Germany, Japan, South Korea, Taiwan and Switzerland as possible manipulators.

“That is because the first five all have large bilateral trade surpluses with the U.S., while Switzerland has a current account surplus and has ‘engaged in persistent, one‐sided intervention in foreign exchange markets,’” the Telegraph reported, citing the U.S. treasury.

Meanwhile, the world’s central banks have been accused of engaging in a “race to the bottom” with massive efforts to cheapen their currencies. The Federal Reserve kept interest rates near zero percent for eight years and bought trillions of dollars in U.S. debt to effectively flood financial system with cash.

The Bank of Japan, European Central Bank and Swiss National Bank are cheapening their currencies with asset purchases in an effort to boost their struggling economies. If the Fed raises interest rates over the next couple of years, the dollar will get stronger and make trade deficits a potentially bigger problem for Trump.

“When a country is accused of currency manipulation, it can kick off a dispute at the World Trade Organisation or the International Monetary Fund as both bodies try to arbitrate to keep trade open and fair,” the Telegraph reported. “The political fallout and the possibility of retaliation are more immediate concerns.”

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President Donald Trump's campaign pledge to help U.S. workers with better trade policies included accusations that countries like China were fixing their currencies to make their products cheaper to American consumers.
Donald Trump, China, currency, Peter Navarro
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2017-24-01
Wednesday, 01 February 2017 12:24 PM
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