Trump’s Currency War Arsenal Catches Flak at Home

(Bloomberg) --

With all eyes focused on the U.S.-China trade talks Saturday in Osaka, the Trump administration’s effort to wage currency wars just got a little more complicated back home.

The Commerce Department is proposing to modify regulations so it has the ability to impose tariffs on countries that it determines have devalued their currencies. The rule change would allow companies to file claims seeking tariffs in response to what they would consider undervalued currencies. It’s not a popular idea at the Treasury, the sole watchman of the nation’s dollar policy.

Among other reasons to oppose it, determining a currency’s fair value is nearly impossible and doing so might be fraught with legal challenges. As the public comment period expired this week, a couple of well-known experts posted grievances:

• The U.S. Chamber of Commerce called it “flawed” and unlikely to withstand a challenge at the World Trade Organization.
• Mark Sobel, a longtime staffer in the Treasury’s currency-policy trenches until he left in 2015, blasted the proposal as “ill-conceived” and submitted an eight-page rebuttal.
• Harvard economist Jeffrey Frankel said “it is impossible to say when a currency is undervalued or overvalued, let alone by how much,” adding the rule change “would harm the U.S. economy.”
• Commerce Secretary Wilbur Ross, speaking earlier this month on Bloomberg Television, defended the effort to combat undervalued currencies. “It’s a targeted thing, not a big blunderbuss.”
• Commerce’s move follows years of lobbying by currency hawks who argue that the strength of the dollar has long hampered American competitiveness. That pressure had been resisted by successive administrations before Trump, who has abandoned decades of convention and complained about the strong dollar.
• Next steps: The Trump administration reviews the comments and decides whether to go ahead with the rule change.

Charting the Trade War

Here’s one way Bloomberg Economics is looking at the U.S.-China divide:

Today’s Must Reads

• Day one G-20 recap | Catch up on the developments, including U.S. and Chinese negotiators meeting before the much-anticipated leaders’ showdown.
• Japan’s auto fears | Trump’s talk of slapping tariffs on Japanese auto imports could tip the scales for an important global economic engine that’s already in a vulnerable spot.
• China’s tightrope | Policy makers in Beijing are trying to funnel cash into the economy without fueling a real-estate bubble, a task complicated by the trade war with the U.S.
• European export pain | When it comes to the export outlook, confidence among euro-area executives is the lowest since 2012, a headwind for regions’s battered industrial sector.
• Singapore’s alarm bells | City-state will focus on regional trade and digital economic agreements to counter the impact of the U.S.-China trade war that’s weighing on growth prospects

Economic Analysis

• Art of U.S.-China deal | How to get to yes in the next key rounds of trade talks: Economics
• Currency war primer | Real wars have guns. Trade wars use economic weapons: QuickTake

Coming Up

• June 29: Trump meets Xi in Osaka, Japan, at 11:30 a.m. local time
• July 3: U.S. releases trade data for May, 8:30 a.m. in Washington

To contact the editor responsible for this story: Zoe Schneeweiss at zschneeweiss@bloomberg.net

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