Dol­lar up on hopes of Trump’s fis­cal poli­cies

Kuwait Times - - BUSINESS -

TOKYO/SEOUL: Asian cur­rency pol­i­cy­mak­ers are wor­ried that the strength­en­ing of the 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.

China, Ja­pan, South Korea and Tai­wan are al­ready on the US Trea­sury’s mon­i­tor­ing list, along with Ger­many and Switzer­land, hav­ing met some of the con­di­tions to be la­belled a cur­rency ma­nip­u­la­tor, and are wary of the cri­te­ria be­ing changed to make it eas­ier.

The dol­lar’s post-elec­tion surge, which has taken it to eight-year highs against China’s yuan and 5-1/2 month highs against Ja­pan’s yen this week, has been driven by views that Trump’s spend­ing and tax plans will lead to higher in­ter­est rates. “Weaker cur­ren­cies will give an ex­cuse for Trump to blame Asian coun­tries, par­tic­u­larly China, for ma­nip­u­lat­ing ex­change rates,” a Ja­panese of­fi­cial with knowl­edge of cur­rency pol­icy told Reuters.

Asia’s trade sur­pluses with the United States were firmly in Trump’s sights dur­ing the elec­tion cam­paign. US gov­ern­ment data shows China ran a sur­plus last year of $366 bil­lion, while Ja­pan had a sur­plus of $69 bil­lion, South Korea $28 bil­lion, and Tai­wan $15 bil­lion. Trump said he would la­bel China a cur­rency ma­nip­u­la­tor on his first day in of­fice, al­low­ing him to slap 45 per­cent across-the­board 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 they ex­pected the new ad­min­is­tra­tion would pur­sue in­cre­men­tal mea­sures, such as rais­ing more trade dis­pute cases at the World Trade Or­ga­ni­za­tion.

CUR­RENCY MA­NIP­U­LA­TION?

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 onesided 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 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 told Reuters.

Ja­panese Prime Min­is­ter Shinzo Abe on Thurs­day 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 telling him on Mon­day that co­op­er­a­tion was “the only choice” for re­la­tions be­tween the world’s two largest economies.

CON­FU­SION

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 will 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 told Reuters.

“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 doesn’t seem to be what Trump wants.” And with global markets driv­ing the broad gains in the dol­lar, it is not clear what Asian economies could do to stop their cur­ren­cies from weak­en­ing.

With dol­lar-sell­ing in­ter­ven­tion not con­sid­ered a re­al­is­tic op­tion, there is lit­tle Tokyo could do ex­cept ar­gue that Ja­pan is a job creator in Amer­ica, through Ja­panese com­pa­nies op­er­at­ing there, not “steal­ing jobs”. In­deed, should Trump want Amer­ica’s 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 dol­lar rises fur­ther to the point that draws sym­pa­thy from Ja­pan and Europe,” the of­fi­cial said.

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