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Trump tweet sparks concerns that the US may raise tariffs on Europe

Euro and Yuan notes.

Meikesen | Getty Images

U.S. President Donald Trump has accused China and Europe of manipulating their currencies, raising fears that Washington will carry out repeated threats to impose tariffs on goods from the European Union.

“Accusations of Eurozone currency manipulation are … flying from the White House with talk of tariffs on the EU and European countermeasures heating up trade tension between the two regions,” said Robert Carnell, chief economist at Dutch bank ING.wow

In a tweet on Wednesday morning U.S. time, Trump said: “China and Europe playing big currency manipulation game and pumping money into their system in order to compete with USA.”

He then called for easier monetary policy, adding that the U.S. should “match” the monetary policies of China and Europe.

In late May, the U.S. Commerce Department had proposed tariffs on goods from countries found to have undervalued their currencies against the dollar.

“This change puts foreign exporters on notice that the Department of Commerce can countervail currency subsidies that harm U.S. industries,” Commerce Secretary Wilbur Ross had said in a statement. “Foreign nations would no longer be able to use currency policies to the disadvantage of American workers and businesses,” he said.

I don’t know why he’s complaining about China right now. Certainly for anyone who actually follows the Chinese currency, it’s clear that China has not been trying to weaken its currency for the past couple of years.

Sean Callow

Westpac Bank

Analysts said a weaker euro could prod Trump into carrying out previous threats to slap tariffs on European goods — especially in the auto sector. A weaker currency makes a country’s goods cheaper, giving exporters a competitive edge.

“Our biggest concern here is that Trump will be minded to impose ‘countervailing tariffs’ on the European auto sector in coming months, justified on the premise that the Commerce Department has recently granted itself the power to do just this is response to what it deems to be countries that keep their currencies artificially depressed,” said Ray Attrill, head of foreign exchange strategy at the National Australia Bank.

Trump had threatened as early as last year that he would slap a 25% tariff on car imports from the European Union.

On Monday, the U.S. government threatened tariffs on an additional $4 billion of additional EU goods, including olives, Italian cheese and Scotch whiskey.

Yuan ‘manipulation’

Trump’s accusation of China manipulating its yuan is a longstanding one.

Amid the trade war, he has repeatedly accused Beijing of intentionally letting its currency slide lower. As with the euro, a weaker yuan makes Chinese exports more attractive.

“What surprises me is the timing,” Sean Callow, Westpac Bank’s senior currency strategist told CNBC on Thursday, referring to Trump’s tweet. “I don’t know why he’s complaining about China right now. Certainly for anyone who actually follows the Chinese currency, it’s clear that China has not been trying to weaken its currency for the past couple of years.”

In early trade on Thursday during Asian hours, the offshore yuan strengthened slightly to 6.8773, from 6.8847 the previous day. The onshore yuan bounced to 6.8691 against the dollar from 6.8806 on Wednesday.

The euro edged up to 1.1284 against the dollar, from 1.1279 the day before. Meanwhile, the dollar index, which tracks the greenback against a basket of its peers, fell on Wednesday after Trump’s tweet.

— Reuters contributed to this story.

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