US-China trade talks must cover currency, US Treasury chief says

Steven Mnuchin said that China needs to identify concrete ‘action items’ to rebalance the two countries’ trade relationship. (Reuters)
Updated 12 October 2018
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US-China trade talks must cover currency, US Treasury chief says

  • The US Treasury chief and People’s Bank of China Governor Yi Gang extensively discussed currency issues on the sidelines of the IMF and World Bank annual meetings
  • Yi told an investment audience that China’s monetary policy was on an opposite cycle to that of the US Federal Reserve

NUSA DUA: US Treasury Secretary Steven Mnuchin said that he told China’s central bank chief that currency issues need to be part of any further US-China trade talks and expressed his concerns about the yuan’s recent weakness.
Mnuchin said that China needs to identify concrete “action items” to rebalance the two countries’ trade relationship before talks to resolve their disputes can resume.
The US Treasury chief and People’s Bank of China Governor Yi Gang extensively discussed currency issues on the sidelines of the International Monetary Fund and World Bank annual meetings on the Indonesian resort island of Bali.
“I expressed my concern about the weakness in the (yuan) currency and that as part of any trade discussions, currency has to be part of the discussion,” Mnuchin said of the meeting.
The two senior officials talked about market fundamentals that have driven the yuan down against the dollar, Mnuchin said, adding: “I think we had a productive explanation from his standpoint on those issues.”
Yi told an investment audience that China’s monetary policy was on an opposite cycle to that of the US Federal Reserve, which has been raising rates amid a strong economy, people who attended the closed-door session said.
Mnuchin’s comments on China’s currency come ahead of next week’s scheduled release of a hotly anticipated Treasury report on currency manipulation, the first since a significant weakening of yuan began this spring as trade tensions between the world’s two largest economies escalated.
The yuan weakened to 6.912 to the dollar as China reported a record September trade surplus with the United States, fanning fears of an escalation of the two countries’ trade war.
The Chinese currency has depreciated by 5.6 percent against the dollar since the start of the year.
Mnuchin would not discuss the findings of the currency report and declined comment on media reports that Treasury staff had recommended that China not be labeled a currency manipulator.
But Mnuchin emphasized that the report is based on rigorous research and data, and that Treasury’s career staff and leadership were fully aligned on currency issues.
“The currency report is something we report to Congress. It is done pursuant to two separate pieces of legislation. This is not a political document,” he said.
IMF Managing Director Christine Lagarde warned against adding currency wars to the trade conflict, saying this would hurt global growth and “innocent bystander” countries.
Despite US President Donald Trump’s pledge to declare China a currency manipulator on “day one” of his administration, the Treasury has stuck to its three-part test for evidence of currency manipulation — and China has failed to qualify for such a designation.
These include a high bilateral trade surplus with the United States, a global current account surplus above three percent of gross domestic product and “persistent” one-way currency market intervention to weaken or prevent a rise in a country’s currency. In the past two years, China has failed on only one criteria, its high trade surplus with the United States.
US laws mandating the report require the Treasury to enter special negotiations with an offending country to correct their practices, a process that could eventually lead to trade sanctions. But the Trump administration has already hit China with tariffs on $250 billion worth of Chinese goods imports, and has threatened duties on the remaining $267 billion.
Mnuchin declined to confirm a Wall Street Journal report that the White House had decided to proceed with a meeting in November between US President Donald Trump and President Xi Jinping at the G20 leaders summit in Buenos Aires.
But he said re-launching trade talks would require China to commit to taking action on structural reforms to its economy.
“It’s got to be more than a signal” from China, Mnuchin said. “It has to be that we can reach an agreement on action items that can rebalance the relationship. We’ve made it clear that if they have real action items that they want to discuss that we will listen.”
If the relationship could be rebalanced, he said the US-China total annual trade relationship could grow to $1 trillion from $650 billion currently, with $500 billion of exports from each country. That would approach the $1.2 trillion US-Canada-Mexico trade under the North American Free Trade Agreement.
As the IMF launches talks with Pakistan over a bailout package, Mnuchin said transparency was needed for Pakistan’s debts to China and other creditors.
“I think it’s pretty clear that if there is an IMF program, that we’d need to make sure those funds are used for appropriate purposes and they’re not being used to repay China or other creditors. I would expect China to understand that.”
Regarding steep US stock market declines over the past two days, Mnuchin said these were “normal market corrections.”
“I don’t believe markets are efficient,” he said. “So I think that when people invest in the markets, they need to be prepared that there will be times when markets go too far in both directions.”


Germany: US calling European cars a threat is ‘frightening’

Updated 16 February 2019
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Germany: US calling European cars a threat is ‘frightening’

  • ‘If these cars ... suddenly spell a threat to US national security, then that is frightening to us’

MUNICH, Germany: German Chancellor Angela Merkel on Saturday labelled as “frightening” tough US trade rhetoric planning to declare European car imports a national security threat.

“If these cars... suddenly spell a threat to US national security, then that is frightening to us,” she said.

Merkel pointed out that the biggest car plant of German luxury brand BMW was not in Bavaria but in South Carolina, from where it exports vehicles to China.

“All I can say is it would be good if we could resume proper talks with one another,” she said at the Munich Security Conference.

“Then we will find a solution.”

A US Commerce Department report has concluded that auto imports threaten national security, setting the stage for possible tariffs by the White House, two people familiar with the matter said Thursday.

The investigation, ordered by President Donald Trump in May, is “positive” with respect to the central question of whether the imports “impair” US national security, said a European auto industry source.

“It’s going to say that auto imports are a threat to national security,” said an official with another auto company.

The report, which is expected to be delivered to the White House by a Sunday deadline, has been seen as a major risk for foreign automakers.

Trump has threatened to slap 25 percent duties on European autos, especially targeting Germany, which he says has harmed the American car industry.

After receiving the report, the US president will have 90 days to decide whether to move ahead with tariffs.

Trump in July reached a trade truce with European Commission President Jean-Claude Juncker, with the two pledging no new tariffs while the negotiations continued.

Brussels has already drawn up a list of €20 billion ($22.6 billion) in US exports for retaliatory tariffs should Washington press ahead, the commission’s Director-General for Trade Jean-Luc Demarty told the European Parliament last month.

The White House has used the national security argument — saying that undermining the American manufacturing base impairs military readiness, among other claims — to impose steep tariffs on steel and aluminum imports, drawing instant retaliation from the EU, Canada, Mexico and China.

Trading partners have sometimes reacted with outrage at the suggestion their exports posed a threat to US national security.