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US introduces new weapon into currency war

UNITED STATES (OBSERVATORY NEWS) — Penalties will be applied to products from countries whose currencies are deemed by the United States Department of Commerce to be undervalued. The decision aims to eliminate the monetary advantages enjoyed by certain foreign products.

In search of a new weapon in the “currency war”, the Trump administration intends to introduce restrictions on the products of countries that practice competitive devaluation, the US Department of Commerce announced in a press release.

As an undervalued currency promotes the profitability of a country’s exports to the United States, the institution considers it to be “unfair”. Measures taken against this process will help keep the American industry and its employees:

“While successive governments have balked at countering these subsidies, the Trump administration is taking action to create a level playing field for US businesses and workers,” Commerce Secretary Wilbur Ross said in a statement on February 3.

It’s up to the Treasury to decide

In addition to the publication of reports on the exchange policy of the main economic partners of the United States, the Treasury Department will also be responsible for carrying out expert assessments on the foreign exchange markets in order to “decide for itself that a currency is undervalued even if his country is not designated as a currency manipulator by the Treasury,” said analyst Ebrahim Rahbari of Citi bank, quoted by Les Echos.

Against the backdrop of the coronavirus epidemic , the dollar exchange rate against the yuan rose 1.6% on February 3, which may represent a new weapon in the economic war with China, the daily said. The US currency has also gained against the euro since the start of the year, dropping from 1.2% to 1.8%.

US exports decline

While the total amount of goods exported by the United States to China has fallen by $ 13 billion, they cannot simply increase their exports to become more competitive abroad, says Patrick Artus, chief economist at Natixis, quoted by Echos, specifying that “the productive specialization of the United States, deficient, is today limited to services, energy, intermediate goods, aircraft”.

This is why, the weapon of the exchange rate remains effective to reach this objective.

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