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This Week In Trade

China says RMB drop fueled by trade tensions; Trump cries foul

Posted: August 05, 2019

This week began with Chinese officials blaming the depreciation of the renminbi on the U.S. and the Trump administration’s decision to impose more tariffs on Beijing, with President Trump responding by accusing China of manipulating its currency.

“China dropped the price of their currency to an almost a historic low,” the president tweeted on Monday, shortly after the yuan dipped to its lowest level in 11 years. “It’s called ‘currency manipulation.’ Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!”

Chinese officials, however, disputed the notion that the renminbi’s drop was the result of manipulation, claiming that it was instead in response to market fluctuations caused by U.S. tariffs. “Affected by unilateralism and trade protectionism measures and the imposition of tariff increases on China, the RMB has depreciated against the U.S. dollar today, breaking through 7 yuan, but the renminbi continues to be stable and strong against a basket of currencies,” one official said on Monday, according to an informal translation. “This is the market. Supply and demand and the reflection of fluctuations in the international currency market.”

The governor of the People’s Bank of China, Yi Gang, said in a statement that China would “abide by the spirit of the G20 leaders’ summit on the exchange rate issue, adhere to the market-determined exchange rate system, not engage in competitive devaluation, and not use the exchange rate for competitive purposes.”

Trump’s accusations of currency manipulation are not new. He has promised to name China a currency manipulator since launching his 2016 presidential campaign. The Treasury Department, in its semiannual reports on the monetary practices of U.S. trading partners, has not named China a currency manipulator. Treasury’s next report is due in October.

On Friday, the president claimed to be satisfied with the status quo. “Things are going along very well with China,” he tweeted. “They are paying us Tens of Billions of Dollars, made possible by their monetary devaluations and pumping in massive amounts of cash to keep their system going. So far our consumer is paying nothing - and no inflation. No help from Fed!”

China says it has held up its end of G20 deal

The latest uptick in U.S.-China tensions was sparked by Trump’s claims that China is not following through on purchasing U.S. agricultural goods, which he says Chinese President Xi Jinping committed to during their meeting in Osaka, Japan on the sidelines of the G20 leaders summit in June. Chinese officials dispute Trump’s allegations, claiming they have completed some agricultural purchases. However, Section 301 and 232 tariffs imposed by the U.S., which directly resulted in Chinese retaliatory tariffs on U.S. goods, have made American agricultural products uncompetitive in the Chinese market.

As of Friday, China had agreed to purchase 130,000 tons of soybeans, 120,000 tons of sorghum, 60,000 tons of wheat and 40,000 tons of pork and pork products, Cong Liang, the secretary general of the National Development and Reform Commission, told Xinhua, the official news agency of the Chinese government. Chinese purchasers also have inquired about buying ethanol, corn, soybean oil, wine and beer, but more sales have not been completed because the prices for U.S. goods have been driven up by tariffs, Cong said.

“As long as the prices of American agricultural products are fair and the quality is good, Chinese companies are willing to import more American agricultural products to meet the needs of the Chinese people,” Cong said. “Now some American agricultural products cannot enter, and fundamentally, because the United States imposes tariffs and trade wars. The price of U.S. agricultural products is not competitive in the Chinese market.”

Chinese state-run agricultural firms have also halted purchases of U.S. agricultural products, according to Bloomberg.

AGOA Forum

Deputy U.S. Trade Representative C.J. Mahoney is leading a delegation to Côte d’Ivoire this week for the annual African Growth and Opportunity Act Forum. This year’s forum happens as the International Trade Commission, at the request of USTR Robert Lighthizer, is investigating the trading and investment practices of AGOA beneficiaries. USTR’s annual AGOA review hearing is later this month.

USTR holds hearing on Airbus retaliation

USTR on Monday is holding a second hearing on potential retaliation it could impose on the European Union for illegal subsidies member states provided to Airbus. The hearing is for a supplemental retaliation list USTR published last month, which added $4 billion worth of European products to a list of $21 billion worth of EU goods. A World Trade Organization arbitrator is expected to soon approve the amount of U.S. retaliation.

If the U.S. moves ahead with the WTO-approved retaliation, the EU has promised to go forward with its retaliation on the U.S. for illegal subsidies U.S. states provided to Boeing. The WTO arbitrator is expected to authorize the EU retaliation amount by the end of the year.

EU officials have said they prefer that the U.S. and EU work out a negotiated solution to the long-running WTO dispute.

WTO to hear Korean retaliation request

The WTO’s Dispute Settlement Body will hold a special meeting on Friday to hear Korea’s request to retaliate against the U.S. for improperly calculating antidumping duties on Korean oil country tubular goods. Korea is seeking authorization to retaliate against $350 million worth of U.S. goods.

U.S. implications of Japan-Korea trade fight

The Heritage Foundation on Wednesday will hold a forum on the trade spat between Korea and Japan. Last week, Japan placed export restrictions on products headed to Korea. U.S. industry groups are warning that global supply chains, particularly in technology products, will be disrupted. Despite historically and economically strong relationships with both South Korea and Japan, whether and how the U.S. might intervene remains unclear.

The underlying tension stems from Korea's ongoing insistence that Japan must pay additional reparations for crimes, including forced labor and sexual slavery, committed during its occupation of Korea in the first half of last century -- including a recent Korean Supreme Court ruling awarding compensation for forced labor. Japan says this goes against previous treaties between the two countries, and the relationship in recent weeks has deteriorated.

Scott Snyder, the director of the Council on Foreign Relation’s U.S.-Korea policy program, Yuli Tatsumi, the Stimson Center’s Japan program director, and Riley Walters, a policy analyst at the Heritage Foundation, will discuss the ramifications of the trade fight.

Another panel will address how the Japan-Korea trade fight will impact U.S. economic, security and strategic interests. Center for Strategic & International Studies senior adviser for Asian economics Matthew Goodman will participate in the discussion with James Schoff, a senior fellow at the Carnegie Endowment for International Peace, and Patrick Cronin, the Asia-Pacific Security Chair at the Hudson Institute.

Indian ambassador at Heritage

Indian Ambassador to the U.S. Harsh Vardhan Shringla on Tuesday will speak at the Heritage Foundation on India’s foreign policy and development strategy and the priorities of the Modi government. U.S. and India trade tensions have been escalating as the U.S. has rescinded India’s benefits under the Generalized System of Preferences and is considering launching a Section 301 investigation into Delhi’s trading practices. India raised tariffs on U.S. goods after its GSP benefits were rescinded.

Report on washer safeguards due

The ITC’s report on the impact of safeguard measures on large residential washers is due to the president on Wednesday. The U.S. applied a tariff-rate quota on all washing machine imports -- save for Canadian imports -- in February 2018 under Section 201 of the Trade Act of 1974. -- Brett Fortnam (bfortnam@iwpnews.com)