[CTC] Trump’s top trade adviser accuses Germany of currency exploitation

Tue Jan 31 10:23:34 PST 2017

https://www.ft.com/content/57f104d2-e742-11e6-893c-082c54a7f539 <https://www.ft.com/content/57f104d2-e742-11e6-893c-082c54a7f539>
Trump’s top trade adviser accuses Germany of currency exploitation

Berlin using neighbours and US and is an obstacle to deal with EU, says Navarro

Germany is using a “grossly undervalued” euro to “exploit” the US and its EU partners, Donald Trump’s top trade adviser has said in comments that are likely to trigger alarm in Europe’s largest economy. 

Peter Navarro <https://www.ft.com/stream/peopleId/YWQ1MWJjNWMtNmI5Yi00ODU1LWEzYzktMjc0YzVjZWFiYTEy-UE4=>, the head of Mr Trump’s new National Trade Council, told the Financial Times the euro was like an “implicit Deutsche Mark” whose low valuation gave Germany <https://www.ft.com/topics/themes/Germany_economy> an advantage over its main trading partners. His views suggest the new administration is focusing on currency as part of its hard-charging approach on trade ties.
In a departure from past US policy, Mr Navarro also called Germany one of the main hurdles to an American trade deal with the EU and declared talks with the bloc over a US-EU agreement, known as the Transatlantic Trade and Investment Partnership, dead.

The Trump administration has publicly declared it prefers bilateral trade deals rather than the broad multilateral accords pursued by Barack Obama, Mr Trump’s predecessor. Mr Trump last week also withdrew from a 12-country Pacific Rim deal negotiated by Mr Obama. 

“A big obstacle to viewing TTIP as a bilateral deal is Germany, which continues to exploit other countries in the EU as well as the US with an ‘implicit Deutsche Mark’ that is grossly undervalued,” Mr Navarro said. “The German structural imbalance in trade with the rest of the EU and the US underscores the economic heterogeneity [diversity] within the EU — ergo, this is a multilateral deal in bilateral dress.” 

Despite those differences, most debate over German economic policy during the Obama administration was cloaked in diplomatic language; Mr Navarro’s comments highlight a growing willingness by the Trump administration to antagonise EU leaders and particularly Angela Merkel <https://www.ft.com/topics/people/Angela_Merkel>, the German chancellor <https://www.ft.com/topics/people/Angela_Merkel>.
Besides publicly supporting the British government in its negotiations with the EU over the terms of its exit, Mr Trump called the EU a vehicle for Germany <https://www.ft.com/content/1f7c6746-db75-11e6-9d7c-be108f1c1dce>, and Nato an obsolete alliance. 

Mr Navarro’s intervention follows a visit <https://www.ft.com/content/2c509c50-e4ba-11e6-9645-c9357a75844a> to Washington last week by Theresa May, the British prime minister, in which she and Mr Trump discussed ways to launch negotiations for a US-UK trade deal. Mr Navarro said the Brexit vote marked the death knell of a US-EU deal; Britain had been one of the pact’s leading advocates.

“Brexit killed TTIP on both sides of the Atlantic even before the election of Donald Trump. I personally view TTIP as a multilateral deal with many countries under one ‘roof’,” Mr Navarro wrote in emailed responses to FT questions.

Although criticisms of German economic policy have been a staple of Group of 20 gathering since the height of the eurozone crisis, the view Berlin is intentionally advocating a weak euro to its own economic benefit is not widely shared. 

The euro has weakened against the dollar over the past two years as the paths of the central banks of the two currency zones have split. The European Central Bank’s mass bond-buying programme has weakened the single currency, while rate hikes by the US Fed has strengthened the dollar. 

But Berlin has been a leading critic of the ECB’s strategy. The Bundesbank has called for an end to bond buying, while lawmakers have pushed for higher rates — both measures which would strengthen the euro

Mr Navarro said one of the administration’s trade priorities was unwinding and repatriating the international supply chains on which many US multinational companies rely, taking aim at one of the pillars of the modern global economy. 

“It does the American economy no long-term good to only keep the big box factories where we are now assembling ‘American’ products that are composed primarily of foreign components,” he said. “We need to manufacture those components in a robust domestic supply chain that will spur job and wage growth.” 

Mr Navarro, who served as an adviser to the Trump campaign, all but endorsed an import tax plan pushed by Republican leaders in the House of Representatives that has split the US business community. The proposal would eliminate companies’ ability to deduct import costs from their taxable revenues while making any export revenues tax-free. It drew attention last week when the White House pointed to it <https://www.ft.com/content/3fb923e0-e4b8-11e6-8405-9e5580d6e5fb> as one way in which it could pay for a wall on the Mexican border. 

Exporters such as General Electric have hailed the switch to a “border adjustable” system as putting them on an equal footing with international competitors that are able to claim value added tax refunds on their exports. Retailers such as Walmart and other import-dependent businesses, however, say that what would amount to 20 per cent tax on imports would raise consumer prices and hurt their businesses. 

“The unequal treatment of the US income tax system under biased WTO [World Trade Organisation] rules is a grossly unfair subsidy to foreigners exporting to the US and a backdoor tariff on American exports to the world that kills American jobs and drives American factories offshore,” Mr Navarro said. “President Trump promised during the campaign he would put an end to this unfair treatment of our income tax, and the House border adjustable proposal offers one possible option among several.” 

Mr Navarro rejected the argument that US consumers would end up paying the cost of such a tax change. That was “an old and tired argument the globalist wing of the offshoring lobby has used for years to put Americans out of work and depress wages by shipping our jobs offshore”. 

“We prefer paychecks to welfare checks for the American people and a robust middle class with rising wages,” he said. 

Proponents argue that at least some of the impact on consumers would be absorbed by a one-time appreciation in the dollar. That in turn, they concede, could also impact on US export competitiveness and lead to a widening of the US trade deficit with the world, which the Trump administration has vowed to reduce. 

Mr Navarro, however, said he was not concerned about the possibility of a stronger dollar <https://www.ft.com/content/43d87218-e6bc-11e6-893c-082c54a7f539> and its impact on US exports. 

“I worry about the actual impact America’s trade deficit in goods is having on our rates of economic growth and income growth.” 

Additional reporting by Claire Jones in Frankfurt
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