Asian export nations wary dollar boost gives Trump pretext to beat them

TOKYO/SEOUL: Asian currency policymakers are worried that the strengthening of the dollar on expectations of US Presidentelect 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, 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 US were firmly in Trump’s sights during the election campaign. US government data shows China ran a surplus last year of US$ 366 billion, while Japan had a surplus of US$ 69 billion, South Korea US$ 28 billion, and Taiwan US$ 15 billion.

Trump said he would label China a currency manipulator on his first day in office, allowing him to slap 45 per cent 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 they expected the new administration would pursue incremental measures, such as raising more trade dispute cases at the World Trade Organisation.

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 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. — Reuters