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Regulation to Address Undervalued Currencies
Jesse Richman, 5/24/2019

The Trump administration appears to  be moving forward with regulations that will allow the Commerce Department to impose countervailing duties against countries found to have undervalued currencies.  Currency manipulation and undervaluation have long been a prime tactic of mercantilists, and so this regulation is a welcome move that will expand the capacity of U.S. companies to respond to subsidized competition from abroad.  A comment period is now open on the proposed regulations. 

Under the regulations, the Commerce Department in conjunction with the Treasury Department will determine whether the currency has been undervalued.  Specifically:

"We will seek and to defer to the Department of the Treasury’s (Treasury’s) evaluation and conclusion as
to whether government action on the exchange rate has resulted in currency undervaluation,
unless we have good reason to believe otherwise, based on the record as a whole, in which case
we will provide Treasury an opportunity to review and rebut the contrary reasoning.  Treasury
will use a consistent framework to assess currency undervaluation resulting from government
action, recognizing country-specific factors.  If it is determined that there is currency
undervaluation based on government action on the exchange rate, Commerce will proceed to
determine whether such action is countervailable."

The proposed changes are not likely to have a major impact on US trade policy, though they are a step in the right direction and might have been very useful two decades ago when China's undervalued currency was first beginning to have a major impact on US industry.  According to the proposed regulation, estimates of its impact in terms of tariffs collected are quite modest:

"As discussed below, we estimate that the
total amount of countervailing duties that might be collected due to countervailing such subsidies
could range from $3.9 million to $16.6 million annually – or, if certain additional assumptions
are made, reflecting an unlikely scenario, up to $21 million."  

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