news desk
\nWASHINGTON
\nPresident Donald Trump\u2019s renewed focus on what he calls \u201cunfair\u201d exchange rates could presage a new global battlefield that has the potential to do great damage to the world economy.
\nTrump has spent two years attacking the underpinnings of the global trading system, launching multi-front tariff wars on allies and adversaries alike while complaining that the United States has been taken advantage of.
\nUnder a proposed new rule that could come into effect as early as next month, the US may impose punitive tariffs on any country it determines is manipulating its currency to make its products more competitive than American goods.
\nTrump has frequently attacked eurozone countries like Germany for benefitting from a relatively weak currency and last week said, \u201cThey have been getting away with this for years, along with China and others.\u201d
\nAs Trump\u2019s attack on European Central Bank President Mario Draghi in the past week shows, once-mundane monetary policy moves could be used as ammunition to justify retaliation.
\nEconomists warn this opens the door to a damaging global currency war pitting everyone against everyone.
\nIf Trump follows this new path, likely with the backing of Commerce Secretary and trade hard-liner Wilbur Ross, the United States would be vulnerable to retaliation when the Federal Reserve eventually cuts the benchmark interest rate as Trump has demanded they do.
\nCentral banks use interest rate cuts to spur a sluggish economy, weakening a currency\u2019s value in exchange for boosting exports, which then power economic growth.
\nMark Sobel, who served in the Treasury for years under Republican and Democratic administrations, said he has \u201cserious reservations\u201d about the new plan.
\nIn his submission to the Commerce Department, he said the rule change is \u201cfundamentally flawed … and could prove counterproductive and harm the US economy.\u201d
\nOver the years, lawmakers and presidents from both the Democratic and Republican parties have floated plans to go after governments that manipulate their exchange rate to compete in the global trading system.
\nBut the efforts \u2014 mostly aimed at China \u2014 have always been resisted and eventually abandoned, in part because they were viewed as a violation of global trade rules.
\nAnd ironically, China has not been intervening in markets in recent years except to keep the yuan from falling, and the currency has instead gained in value since the financial crisis.
\nCurrently, the US Treasury issues a twice-yearly report scrutinizing possible currency manipulation.
\nBut since the mid-1990s, the department has never taken the final step of labeling a country as a manipulator, even in the years when China was very active in its efforts to keep the yuan weak.
\nNow the Commerce Department has moved to wrest control of the issue away from the Treasury by proposing a rule modification that would allow it to treat currency manipulation the same as it would a foreign government subsidy that harms American manufacturers.
\nIf approved, Commerce could impose tariffs to offset the weaker exchange rate against the US dollar. The department is accepting comments from the public until June 27, and could implement the change any time after that.
\nAccording to the proposal, Commerce said it would defer to Treasury\u2019s evaluation of whether a currency is undervalued, \u201cunless we have good reason to believe otherwise.\u201d
\nThat ambiguity raises red flags for economists, many of whom believe Commerce does not have the technical expertise to make that evaluation.
\nThe plan \u201cwould grant the Commerce Department excessive discretion,\u201d Sobel said.
\nIt also is notoriously difficult to calculate objectively whether a particular currency is undervalued and, if so, by how much.
\nFor years, the Peterson Institute for International Economics produced a report evaluating exchange rates but stopped \u201cbecause they were completely arbitrary,\u201d the think tank\u2019s chief Adam Posen told reporters recently.
\n\u201cChina should have been hammered hard in the early, mid-2000s for massive manipulation of the currency,\u201d Posen said, but to do so now is \u201cpretty close to absurd.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
news desk WASHINGTON President Donald Trump\u2019s renewed focus on what he calls \u201cunfair\u201d exchange rates could presage a new global battlefield that has the potential to do great damage to the world economy. Trump has spent two years attacking the underpinnings of the global trading system, launching multi-front tariff wars on allies and adversaries alike […]<\/p>\n","protected":false},"author":2,"featured_media":70667,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":["post-70644","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business"],"yoast_head":"\n