(Bloomberg) -- U.S. Treasury Secretary Steven Mnuchin says currency policy can be an important tool to address trade imbalances, and that a recent proposal to tariff countries that engage in competitive devaluation doesn’t represent a preference for a weak dollar.
The Trump administration last month signaled intent to turn the $5.1 trillion-a-day global currency market into the next battlefield of his trade war with a Commerce Department plan that would allow the U.S. to apply countervailing tariffs on nations seen to be actively driving down their currencies to boost exports.
Rebutting the view that such a regulation would signal the Trump administration’s shift toward a weak dollar policy, Mnuchin described it as “another important tool in the toolkit to make sure that we have fair and balanced trade.” He spoke in an interview Saturday in Fukuoka, Japan, where he’s meeting counterparts from the Group of 20 gathering of the world’s major economies.
“Currency is now one of the issues we can look at in terms of subsidy,” Mnuchin said, noting that the administration acknowledges the difference between monetary and currency policy. “You can intervene and support your currency -- that’s not manipulation.”
The preference for a more active currency stance is gaining momentum as U.S. policy makers grapple with a wave of economic populism that brought President Donald Trump into office. His election in November 2016 highlighted an overlooked part of the electorate frustrated with trade-related job losses.
Elizabeth Warren, a Massachusetts senator, has called for “actively managing” the dollar in an effort to appeal to manufacturers, saying it would bolster U.S. jobs and growth. The move would break from a longstanding currency agreement among the world’s 20 major economies to allow markets to determine foreign-exchange rates.
A Federal Reserve gauge tracking the greenback against 26 of the largest trading partners is close to its 2002 record high. The steady strengthening of the buck has the Trump administration calling for foreign-exchange clauses as a backstop in every new trade deal it strikes. Canada and Mexico signed on to foreign-exchange provisions, and China and Japan are expected to do so too if they manage to reach agreements with Trump.
America’s long-held currency doctrine -- that a strong dollar is in the nation’s best interest -- is facing a rethink amid the greenback rally and trade tensions. Already under Trump, Treasury has expanded the number of countries whose currencies are scrutinized to 21 from 12, with nine of those on a watchlist -- including China.
The Commerce Department is suggesting the U.S. take an even more detailed view of currencies through a new countervailing duty rule. It says that the purpose of its proposal is to “provide relief’’ to American workers, farmers and businesses “injured by unfairly subsidized imports.”
Commerce’s proposal doesn’t identify any individual country as a target. It would allow American companies to seek anti-subsidy tariffs on products from countries considered to be engaging in competitive devaluation. A decision to apply a countervailing duty on exports would rely on a framework for analysis to be developed by Treasury, the proposal said.
Mnuchin downplayed the Commerce proposal as a technical issue, rather than marking a significant new policy development.
The goal is to “address when a country is using their currency for competitive purposes and devalues their currency for the purposes of trade.”
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