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US seeks to hit currency devaluers with duties as trade war with China widens

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US seeks to hit currency devaluers with duties as trade war with China widens

The U.S. Department of Commerce proposed a rule change to impose countervailing duties on countries that devalue their currency relative to the dollar, a move that largely targets China as the two countries' trade dispute heats up.

China has routinely devalued the yuan in response to U.S. tariffs on its goods in order to offset some of the intended economic impact. The rule would be to prevent countries from subsidizing their products to effectively undercut U.S. goods.

"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 said in a statement. "Foreign nations would no longer be able to use currency policies to the disadvantage of American workers and businesses."

The rule proposal comes as the U.S. is threatening to impose tariffs on $300 billion of Chinese goods, which would come on top of tariffs already imposed on $250 billion of their exports.

In its October 2018 currency report, the Treasury Department named China along with Germany, Japan, South Korea, Switzerland and India to its monitoring list of major trading partners "that merit close attention to their currency practices and macroeconomic policies."

Under the proposed process, the U.S. would use the International Monetary Fund's real effective exchange rate, or REER, for a country as a benchmark, Chad Brown, senior fellow at the Peterson Institute of International Economics, said on Twitter in response to the proposal.

Commerce would then direct the Treasury to compare the investigated country's REER to the U.S. bilateral exchange rate to determine undervaluation, and then the U.S. would impose a countervailing duty.

Countervailing duties, a hallmark of the Trump administration's trade enforcement policy, are also known as anti-subsidy duties and are typically used to offset export subsidies.

Brown said it has not been previously used for this purpose and would become "even more political," and the likely result of the rule would be more U.S. tariffs, including on China.