The White House is exploring a new tactic to discourage China from undervaluing its currency to boost exports, part of an evolving Trump administration strategy to challenge the practices of the U.S.’s largest trading partner while stepping back from direct confrontation.
Under the plan, the commerce secretary would designate the practice of currency manipulation as an unfair subsidy when employed by any country, instead of singling out China, said people briefed on or involved in formulating the policy. U.S. companies would then be in a position to bring antisubsidy actions themselves to the U.S. Commerce Department against China or other countries.
The currency plans are part of a China strategy being assembled by the White House’s new National Trade Council, which seeks to balance the goals of challenging China while still keeping relations with the country on an even keel. To do that, measures taken against China would also apply to other nations.
The administration would avoid, at least for now, making confrontational claims about whether China is manipulating its currency for trade benefit, the people said.
The move could be a sign the Trump administration is softening its stance on China. During his presidential campaign, Donald Trump threatened to label China a currency manipulator on the first day of his administration, which he didn’t do. He also threatened to slap 45% tariffs on Chinese goods, an idea he hasn’t raised recently.
During a phone call with Chinese President Xi Jinping last week, President Trump backtracked on a threat involving the “One China” policy, which recognizes Beijing sovereignty over Taiwan. Mr. Trump said the U.S. would honor the “One China” policy, according to the White House, after he earlier threatened he might not do so unless China made big concessions on trade.
But the currency move, if put into effect, is bound to be controversial because it may violate World Trade Organization rules. Other countries are also sure to take similar measures against U.S. exports and could argue that Federal Reserve policies that weaken the dollar qualify as subsidies. The Obama administration, concerned about such consequences, decided against naming currency practices as a subsidy.
Is this more evidence of the reality of Trump's trade policy not matching his rhetoric? This approach would certainly be a lot better than imposing a 45% tariff on all Chinese goods, and it may end up not being used, as currency manipulation seems to have diminished recently.
A new DOC policy of this kind will linger out there as a possible source of tariffs, though, and WTO litigation about its consistency with the SCM Agreement is likely if it is ever invoked (and there could also be an "as such" challenge before that). The chances of any new rules in this area being found in violation depend on the details of the methodology, which may not be available for a while even if this is the approach they settle on.