TC

16/10/2019 11:57

US-China trade deal may include currency side deal - S&P

   China would probably agree to a side deal on currency policy if it rests on allowing market forces to play a greater role, said S&P Global Ratings today in a report titled "Trade Deal Entree With A Side Of Currency."
  The U.S. has become fond of including currency provisions in its recent trade agreements and these often require that countries refrain from exchange rate manipulation and competitive devaluations.
  Given that the U.S. Treasury recently labeled China as a currency manipulator, it would be no surprise should currency policies form part of any U.S.-China trade deal.
  Shaun Roache, Asia-Pacific chief economist at S&P Global Ratings said "China is likely to agree to currency provisions if they follow recent precedents, such as the United States-Mexico Canada Agreement because it is unlikely to require any major change in policies. For some time, China has adopted a light touch with the exchange rate and allowed more flexibility versus the U.S. dollar."
  Unlike the Plaza Accord of 1985, recent currency provisions are not aimed at substantial currency realignments. Instead, they call for less intervention and a greater role for market forces in determining exchange rates.
  Roache noted that "This does not mean currency valuation is off the table as an issue of debate. Rather, it means that addressing such concerns will take place in a broader context of macroeconomic policies, including fiscal policies and structural reforms."
  While a mini-deal is now likely, a comprehensive resolution of the U.S.-China dispute still seems some way off. The two countries appear to have made little to no progress on the structural issues at the heart of their trade-technology dispute. Thorny issues related to verifiable intellectual property protection, enhanced market access for foreign firms in high growth sectors, and a level playing field remain unresolved.
  Roache added that "most of these issues are especially relevant for technology and knowledge-intensive industries and we may see ongoing tension in these areas."

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