Buoyed by the success of the phase one trade deal, the US has revealed a new weapon in its trade war with China.
The US Department of Commerce has finalised a new rule that will allow Washington to impose tariffs on countries it believes are intentionally devaluing their currencies.
The intentional devaluation of currencies supposedly gives the countries that do it an edge in trade by making their exports cheaper. In 2018, the US accused China of devaluing the renminbi by allowing it to slip below the seven to the dollar ratio for the first time since the GFC.
China was placed on a list of currency manipulators – a primarily symbolic move that until now lacked any kind of punitive measures.
“This currency rule is an important step in ensuring that unfair trade practices are properly remedied,” said secretary of commerce Wilbur Ross.
“While successive administrations have balked at countervailing foreign currency subsidies, the Trump administration is taking action to level the playing field for American businesses and workers.”
The Department of Commerce has said that it will only consider government action on the exchange rate, excluding monetary and related credit policy of an “independent central bank or monetary authority”.
The move – which comes as the Chinese government struggles to contain the outbreak of the novel coronavirus while sticking to the commitments it made under phase one – has been met with harsh criticism in China.
“Any new tariffs on Chinese products based on such reasoning will certainly meet the wrath of Chinese officials and draw stern responses from China for violating US’ phase one commitments and overturning its previous decision to remove China from the list of currency manipulators,” warned China’s state-run media outlet the Global Times.
“Such a move would certainly put the phase one agreement and second phase talks at grave risk.”