Asian currency policymakers are worried that the strengthening of the US dollar on expectations of US president-elect Donald Trump’s fiscal policies could be used by his administration as a stick to beat them with on trade protectionist grounds.
Taiwan, China, Japan and South Korea are already on the US Department of the Treasury’s monitoring list, along with Germany and Switzerland, having met some of the conditions to be labeled a currency manipulator, and are wary of the criteria being changed to make it easier.
The US dollar’s post-election surge, which has taken it to eight-year highs against the yuan and five and a half month high against the yen this week, has been driven by views that Trump’s spending and tax plans could lead to higher interest rates.
Photo: AFP
“Weaker currencies will give an excuse for Trump to blame Asian nations, particularly China, for manipulating exchange rates,” a Japanese official with knowledge of currency policy said.
Asia’s trade surpluses with the US were firmly in Trump’s sights during the US election campaign. US government data shows Taiwan ran a surplus last year of US$15 billion, while South Korea had a surplus of US$28 billion, Japan of US$69 billion and China US$366 billion.
Trump said he would label China a currency manipulator on his first day in office, allowing him to slap 45 percent across-the-board tariffs on its exports, and accused other Asian nations of unfair trade practices.
“A major shift toward trade protectionism in the US could have a significant impact on Asian economies,” Fitch Ratings said in a report.
“Disruption to trade between China and the US would have ramifications for the region,” Fitch said, adding that they expected the new administration would pursue incremental measures, such as raising more trade dispute cases at the WTO.
The US treasury currently monitors three conditions to declare a country a currency manipulator; running a significant trade surplus; running a material current account surplus; and persistent one-sided foreign exchange intervention.
The surplus levels and degree of intervention that trigger those conditions could be changed, however, making it easier to fall foul of the “manipulator” label.
“With Republicans in control of Congress, we think a Trump administration would secure passage of legislation relaxing the criteria,” ING Group NV chief Asia economist Tim Condon said in a report.
South Korea is already bracing for tougher scrutiny under Trump and is anxious not to be tripped up by any such rule changes.
“We’re paying close attention to make sure [South Korea] is not added to the list of ‘enhanced analysis’ or ‘currency manipulators,’ even if the rules are strengthened,” a South Korean foreign exchange official said.
Japanese Prime Minister Shinzo Abe on Thursday last week became the first foreign leader to meet with Trump since the election. Abe was seeking clarity on a range of campaign statements by the president-elect, but would not disclose specifics of the conversation.
China has warned Trump about putting up trade barriers, with President Xi Jinping (習近平) telling him on Monday last week that cooperation was “the only choice” for relations between the world’s two largest economies.
Part of the difficulty for policymakers in Asia trying to prepare for the new administration is that Trump spoke in broad terms to a domestic audience, but with no track record in public office to go by, it is hard to gauge how or if that rhetoric would translate into policy.
“The policies of president-elect Trump will be hard to match what he was promoting during his election campaign,” a Taiwanese central bank official said. “For example, Trump in his campaign had said he wanted Apple Inc and other companies to repatriate their profits home. This could lead to a stronger US dollar, which does not seem to be what Trump wants.”
And with global markets driving the broad gains in the US dollar, it is not clear what Asian economies could do to stop their currencies from weakening.
With us dollar-selling intervention not considered a realistic option, there is little Tokyo could do except argue that Japan is a job creator in the US, through Japanese companies operating there, not “stealing jobs.”
Indeed, should Trump want the US’ main trading partners to reverse their falling currencies, he might have to aim for coordinated action, such as a repeat of the 1985 Plaza Accord deal to stabilize currency rates, the Japanese official said.
“That would be impossible, though, unless the [US] dollar rises further to the point that draws sympathy from Japan and Europe,” the official said.
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