First, the dollar dropped following comments from commerce secretary Wilbur Ross, who said that he expected to start renegotiating NAFTA within two weeks and that Japan will be high on the list for trade agreements.
Now, in a second salvo against the strong dollar on the same day, Bloomberg reports that during his first appearance at next week’s G-20 meeting in Baden-Baden, Germany, Treasury Secretary Steven Mnuchin plans to drive home the message that the U.S. won’t tolerate countries that engage in currency devaluation to gain an edge in trade, a statement which would clearly refute Mnuchin’s recent praise for a stronger dollar, and provides further evidence that the Trump administration’s preliminary focus will be on getting the dollar weaker, not stronger, which may in turn impact the Fed’s decision-making, especially if indeed Yellen hopes to hike rates three (or more) times in 2017.
The message, which will borrow from the G-20 consensus view hammered out with the previous U.S. administration, will be Mnuchin’s focus as he has few political staffers to develop detailed positions on key points such as global trade rules and their collision with President Donald Trump’s “America First” stance.
Mnuchin will also say that the American trade deficit is a sign other major economies aren’t doing their part to support global demand, making the world’s economic growth unbalanced. While this is a long-standing U.S. grievance, Bloomberg notes that counterparts are on the lookout for signs that this position is hardening in the context of a stronger dollar, especially toward Germany, which last year ran a trade surplus of more than 8 percent of its gross domestic product.
More from Bloomberg:
Specific language on countering trade barriers that may also be a focus for haggling in Baden-Baden. The G-20’s last communique, from the meeting in Chengdu, China, in July, commits members to resisting “all forms of protectionism,” wording that the U.S. now appears set on removing. The Trump administration’s protectionist stance, plans to renegotiate trade pacts like Nafta, and the possible implementation of a border tax would make it next to impossible for Mnuchin to sign up to that line.
An early draft communique, dated March 1, omitted that pledge, even though the hosts, Germany, and most other members continue to back it. Instead, the U.S. wants the insertion of a reference to “fair and equitable trade,” a reflection of the inward-looking trade policies that Trump backs, two people said.
If Mnuchin advances this argument further in Germany, he’ll find himself at odds with fellow Goldman Sachs alumnus Mario Draghi. The European Central Bank president on Thursday rejected the Trump administration charge that Germany is manipulating its currency — the euro, which is shares with 18 other countries — and defended the G-20 status quo. “It’s quite important that the G-20 reaffirms this commitment,” Draghi said at a press conference in Frankfurt. The consensus against protectionism and in favor of market-based exchange rates “have been pillars of world prosperity for many, many years,” he said.
One ex-Goldmanite versus another: it should make for an entertaining media – and trial balloon – spectacle, if little more.
Having been hit earlier following Ross’ comments, the greenback slide further, and hit intraday lows following the Mnichin statement, as concerns build that the Trump administration’s patience with a strong dollar may have run out.