New Nafta clause may be first US step to extend its currency manipulator criteria to global trade deals
The USMCA foreign exchange clause may be an initial attempt by the US to extend its currency manipulator criteria to other trade deals in an attempt to hem in managed exchange rate regimes, such as China’s
A curious part of the new US, Mexico, Canada Agreement (USMCA), which replaces and updates the North American Free Trade Agreement (Nafta), is a chapter on “macroeconomic policies and exchange rate matters”, which could set a precedent for the US negotiating further trade deals with other countries, say analysts.
Chapter 33 addresses countries artificially devaluing their currencies to gain an unfair competitive advantage in international trade. It is the first time such a clause has been included in a major trade agreement.
The clause only applies to the three countries in the USMCA agreement, where there is no controversy on respective exchange rates.
Its inclusion could, however, signal the Trump administration’s intent to include similar wording in other trade deals it is now negotiating with the European Union and Japan, and could form the basis for an argument that it should be the norm for all trade agreements.
If that is the intent, then it could effectively extend the current US currency manipulation examination process to much of the rest of the world, putting pressure on those countries who do not have freely-floating exchange rates, such as China.
A market-determined exchange rate regime should be achieved by the three USMCA participants, according to the currency chapter, and those three countries should take steps to strengthen economic fundamentals to reinforce exchange rate stability.
To monitor these standards, countries’ monthly interventions in foreign exchange markets need to be disclosed no later than seven days after the end of each month, while their quarterly balance of payments portfolio capital flows must be reported no later than 90 days after the end of each quarter.