China: Currency Manipulation, and North Korea

Published on February 16, 2017

Senior Chinese officials noted a news article on potential new tactics from the Trump administration whereby the commerce secretary would designate the practice of currency manipulation as an unfair subsidy, and have responded as follows:

*** They believe the “new tactics” as outlined in a Wall Street Journal article signal an overall softening of the stance against China on currency manipulation, and is an attempt to avoid confrontational claims that China is manipulating its currency for trade benefit. They also note the “new” tactics are in reality not so different from those undertaken by the previous Obama, Bush, or Clinton administrations. ***

*** Categorizing FX manipulation as a subsidy does give US companies a new arrow with which to respond to perceived mercantilist actions by China, but they note American companies already routinely bring anti-subsidy cases to the US Commerce Department against imports they believe are being improperly subsidized. And when they prevail, Commerce often assesses heavy tariffs on these imports. ***
*** Beijing is nevertheless bracing for a year of potentially “unprecedented trade disputes,” and warns that Washington is likely to violate WTO regulations if the new approach is instituted, and will sue the US and take retaliatory measures if needed. ***

Assessing Tariff Damage to China Trade

In preparation, Beijing has tasked five Departments, led by the Commerce Ministry, to assess the highest level of tariffs that China’s largest export … and import in case of retaliation… industries can endure.

Officials warn there are at least four potential counter measures that could include:

Conducting anti-dumping investigations on American companies under WTO rules; adjusting and limiting the scope of Chinese government purchases of US products; targeting American companies for violating China’s own anti-trust and price fixing laws, and; imposing more stringent requirements on US imports.

Through the tough talk, the hope is for a more conciliatory trade relationship, and not what they would characterize as a most certain “lose-lose” trade war. To that end, officials note that for all the attention on currency manipulation, the Chinese Renminbi is at a more comfortable level than before.

And they continue to hold out the possibility that the currency could even appreciate a bit against the dollar should China’s growth remain, as expected, relatively stable.

That, however, also assumes China’s exports remain steady….and that China and the US have no major trade disputes (see also SGH 2/13/17, “China: Inside the Xi-Trump Phone Call”).

Beijing on North Korea Assassination and Nuke Test

Sources in Beijing confirm their shock and anger at the death of Kim Jong-Un’s half-brother, Kim Jong-Nam.

Chinese security officials have no doubt Kim Jong-Nam was murdered on the orders of North Korea’s Supreme Leader Kim Jong-Un. Kim Jong-Nam and his family had been under Beijing’s protection after the execution of his uncle Jang Song Thaek three years ago.

Like his uncle, both were seen as strong allies of China, and proponents of “Chinese-style” reform for North Korea. The assassination is seen as a big blow to President Xi Jinping and Beijing.

So long as he was in China, Kim Jong-Nam was safe, but he is said to have traveled to Southeast Asia often to “meet lovers, see friends, or plain sight-see.” On these trips, he was not accompanied by family members, nor protected by Chinese plainclothes officers.

His surviving wife and children remain in China and are under close supervision. Beijing believes his children will be Pyongyang’s next assassination target, and will do the utmost to protect them.

After the assassination, relations that purportedly were gradually normalizing between China and North Korea will once again return to a “cooling state.”

More to the point, on the heels of the latest missile launch by Pyongyang, Beijing will adopt a tougher stance toward North Korea.

If the United States were to move to return North Korea to the designated terrorist country list, we are told Beijing will not get in the way.

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