GHY Tradelines

(Wall Street Journal)

China’s exports will continue to feel the pinch of a stronger yuan in the months ahead and some exporters are already wary of taking longer-term orders, a Commerce Ministry spokesman said Tuesday. Shen Danyang told reporters that a survey of about 1,000 exporters showed that 73.4% of these companies expect the stronger yuan to affect their overseas shipments.

The Chinese currency has gained 12% against a weakening yen this year, and has risen 1.7% against the dollar and 1% against the euro over the same period. China’s exports in May rose 1% from a year earlier. Read more here.
 

(Xinhua)

The RMB, or Chinese yuan, would be able to become one of the top three global traded currencies in volume term by the end of 2015, said Douglas Flint, chairman of HSBC Holdings plc, in London Friday.

“The RMB is increasingly the part of normal day-to-day business for anyone trading or investing in China,” said Flint at the Annual General Meeting (AGM).

“Every international business with an eye on China should be considering potential benefits for using the RMB, and the RMB investment opportunity has been created around the world, supported by the thriving offshore markets, particularly offshore bond markets,” he said. Read more here.
 

(Mark Weisbrot – Huffington Post)

The Trans-Pacific Partnership (TPP) is a very special trade agreement. It is so special that our government officials who are negotiating it want to keep it completely secret from us. It’s like a special Christmas present so they want it to be a surprise! And to make sure it’s a surprise, they won’t even let a single member of Congress see what they are negotiating. However, hundreds of corporations have been given access to the draft text.

This should give you some idea of our government’s trade agenda. President Obama says that he wants to create jobs through trade, but this agreement is more likely to cost jobs here than to create them. Leaked drafts of parts of the agreement indicate that our negotiators are trying to increase patent protection for pharmaceutical companies, for example. This will not create jobs, although it may make our big drug companies and their shareholders richer.

When our government tells us such an agreement will create jobs in the U.S., they are saying that the agreement will increase our exports faster than imports. So, for the TPP, they are saying that we will increase our exports to Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, and now possibly Japan faster than our imports from these countries. That is unlikely. We were promised the same thing with NAFTA two decades ago, but it didn’t work out that way at all. Read more here.
 

(RTTNews)

China has indicated that the recent appreciation of yuan is hurting exporters’ profit margins despite improved global demand conditions.

“Yuan appreciation is having a big negative impact on export firms,” Commerce Ministry spokesperson Shen Danyang was quoted as saying in Beijing on Thursday. According to the ministry, export orders also remained weak.

Shen, meanwhile, signaled concern over the continued weakness in yen as a result of the recent monetary easing by Bank of Japan.
 

(STR Trade Report)

In its semiannual report on foreign exchange rate policies released April 12, the Treasury Department again declined to name China or any other major trading partner as a currency manipulator. Reviewing the exchange rate policies of ten economies accounting for 72% of U.S. foreign trade, the report finds that while all of the major advanced economies reviewed have fully flexible exchange rates there are many major emerging market economies, especially in Asia, that manage their exchange rates to varying degrees. Treasury asserts a need for greater exchange rate flexibility in these economies as well as greater exchange rate transparency and stronger discipline over actual and verbal interventions.

This report indicates that developments with respect to China since the last report was issued in November 2012 have been mixed. Treasury continues to state that the Chinese yuan is “significantly undervalued” but does not cite a more updated figure than the 5-10% reported last fall. The report finds that during the past five months the appreciation of the yuan against the dollar fell from 12.6% to 10 since China moved off its exchange rate peg in June 2010 but rose from 40% to 44.8% since China initiated currency reform in 2005. And while Treasury’s last report cited “a substantial reduction in the level of official intervention in exchange markets since the third quarter of 2011,” the new report asserts that “large-scale foreign exchange market intervention has resumed.”

With respect to other economies reviewed, Treasury makes the following observations.

- It remains important that Japan take fundamental and thoroughgoing steps to increase the dynamism of the domestic economy by easing regulations that unduly deter competition in its domestic economy.

- The U.S. will continue to press Korean and Taiwanese authorities to limit their foreign exchange interventions to the exceptional circumstances of disorderly market conditions and to commit to greater foreign exchange market transparency, including through the publication of intervention data.

- Brazil maintains a floating exchange rate regime but over the past year there have been increased official efforts to manage its currency.
 

(Bloomberg)

The Canadian dollar had its biggest drop in more than a year against its U.S. peer as gold led commodities down with its biggest loss in 33 years after China’s growth slowed more than forecast in the first quarter.

The currency weakened against the majority of its 16 most-traded peers on speculation slowing growth at home and abroad will lead the Bank of Canada to trim its economic growth forecast at a policy meeting April 17. Data released last week showed retail sales in the U.S., Canada’s largest trading partner, unexpectedly contracted in March. Commodities, including crude oil, Canada’s biggest export, fell. Read more here.
 

(CTV News)

The Canadian dollar closed higher Tuesday amid a general improvement in risk appetite on financial markets and strong U.S. economic data.

The commodity-sensitive loonie was off early highs amid accelerating price declines for gold, copper and oil but still up 0.17 of a cent at 98.53 cents US after earlier rising to a six-week high of 98.77 cents US.

Traders looked to the February report on U.S. factory orders, which showed a jump of 3% following decline in January that was revised to one per cent from 2%. Read more here.
 

(BNN)

The chief executive of Ford Motor Co. complained on Tuesday about Japan’s devaluation of the yen and reiterated his opposition to Tokyo entering into free trade talks with the United States under an Asia-Pacific agreement.

The yen has fallen around 8 percent against the dollar this year, driven down by Tokyo’s fiscal and monetary policies.

“The markets should determine the exchange rate,” Ford CEO Alan Mulally told a small group of reporters in Bangkok, referring to what he said was “the devaluing of the yen”.

Ford has been vocal in opposing Japan’s entry into the talks for the Trans-Pacific Partnership (TTP), a U.S.-led Pacific free trade pact, until Tokyo opens its market to more U.S. cars.

“It’s the most closed automobile market in the world,” Mulally said, highlighting the combination of non-tariff barriers on vehicle imports and distribution. Read more here.
 

(RTTNews)

China and the United States have “enormous shared interests”, Chinese President Xi Jinping told U.S Treasury Secretary Jacob Lew, who is currently on a visit to Beijing.

“In the China-U.S. relationship we have enormous shared interests, but of course unavoidably we have some difference,” Xi said.

The agenda for the talks, at Xi’s first major meeting with a foreign official after taking office, primarily include cyber hacking, market access and the Chinese currency. The main focus of the talks has been the importance of the relationship between Beijing and Washington, and the officials avoided discussing controversial matters. Read more here.
 

(CBC News)

Bank governor appears before MPs for 1st time since announcing departure

Bank of Canada governor Mark Carney says the Canadian economy would be particularly vulnerable to a widespread currency war. He was speaking to Canadian members of Parliament for the first time since announcing his resignation and taking the job of governor of the Bank of England. As a smaller economy, Canada doesn’t have the flexibility of countries such as the U.S. to manipulate currency markets, Carney told the Commons finance committee.

In a currency war, countries attempt to artificially devalue their currency to boost exports, although this can often escalate into a “race to the bottom” that results in inflation and lower wages. Earlier Tuesday, the G7 issued a statement saying its members nations have pledged to avoid engaging in a so-called “currency war.” The statement, which vows to set monetary policy to address domestic concerns rather than international ones, was signed in Canada by both Carney and Finance Minister Jim Flaherty. Read more here.
 

(RTTNews)

The Group of Seven finance ministers and central bankers reaffirmed their commitment to market determined exchange rates on Tuesday in a bid to calm rising fears of a global currency war.

“We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates,” the group, representing advanced economies, said in a statement released in London.

“We are agreed that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability.”

G7 said the advanced nations will continue to consult closely on exchange markets and extend cooperation. The group’s last joint comment on exchange rates was in March 2011 in response to the movements in the Japanese yen following the devastating tsunami and earthquake that struck the country earlier that month.

Efforts would be focused on preventing a spiral of retributive devaluations similar to what happened in 1930s, when weak economies took their currencies down in an attempt to boost exports. Read more here.
 

(MercoPress)

French President François Hollande called on the Euro zone on Tuesday to develop an exchange rate policy to help protect the common currency from “irrational movements”. His comments came amid growing concern that the Euro, now trading around 1.35 to the U.S. dollar, is too strong and could undermine the country’s exporters and hence wider economic growth.

Hollande said that competitiveness reforms under way in many Euro-zone countries including France risked being undermined by the Euro exchange rate with key trading partners, but he stopped short of calling for exchange rate targets.

“Europe… is leaving the Euro vulnerable to irrational movements in one direction or the other,” he said in his first speech as president to the European Parliament in Strasbourg. “A monetary zone must have an exchange rate policy or else it ends up being subjected to an exchange rate that does not match the true state of its economy.” Read more here.
 

(Conference Board of Canada)

The “lost decade” of essentially no growth in Canadian exports is due less to the strong dollar and more to the rise of China and other emerging economies. A Conference Board of Canada report for the Global Commerce Centre explains how Canada’s trade has shifted this “two-gear” trade model in which the United States is relatively less important and emerging markets offer the greatest opportunity for growth.

Highlights
• The Canadian-U.S. trade relationship is waning in importance, while emerging markets, particularly China, are becoming increasingly important.
• Our trade strengths are shifting away from some manufactured products toward professional services and products related to our natural resource wealth.
• The changes in Canada’s export profile are more than a case of Dutch disease.

Canada’s overall export volumes (both goods and services) changed little in the 2000s. Exports to the United States have been flat since the since the turn of the century, while exports to emerging markets grew by 80%.

The strong loonie alone does not explain this trend. While Canadian exports to the U.S. stagnated, Canadian imports from the U.S. should have risen with the higher dollar, and they have not. Yet, over the same period, the Canadian dollar also rose against many other currencies, such as the euro, the British pound, the Chinese yuan, and the Mexican peso. And in each case, Canada’s bilateral trade increased.

“Many of the changes that happened in the past decade to our export-dependent industries would have occurred regardless of the value of the currency, although the dollar’s strength has likely accelerated the pace,” said Michael Burt, Director, Industrial Economic Trends and author of Walking the Silk Road: Understanding Canada’s Changing Trade Patterns.

“Focusing on the value of the dollar as a key cause of Canada’s changing trade patterns, and thus a tool to change them, is counter-productive. Canadian policy-makers have very limited influence on the value of the currency. Thus, ‘managing’ the value of the Canadian dollar would be difficult and unlikely to produce the desired revival in some industries.”

Since the dawn of the 2000s, what Canada trades has changed. A decade ago, five key products – transportation equipment, pulp and paper, electronic products, plastics and wood products – accounted for almost half of Canadian exports. Today, the top five consists of oil and gas, mineral products, chemicals, primary metals and food products. Other areas of trade strength in recent years include professional and financial services.

The emergence of China on the world stage has led to a realignment of North American trading patterns. A new trade equilibrium is developing among China, Canada and the United States. Canada is losing market share in the U.S. to China, and Chinese imports are capturing market share in Canada from the United States. However, the Chinese market provides massive opportunities for Canadian firms.

The report Walking the Silk Road: Understanding Canada’s Changing Trade Patterns is published by the Conference Board’s Global Commerce Centre. The Centre provides evidence-based tools to help companies and governments respond successfully to the trends reshaping the global business environment.
 

(Alistair Sharp – Reuters)

The Canadian dollar gained sharply against the U.S. dollar on Wednesday as investors cheered a political deal reached in the U.S. Congress that staved off measures that would likely have pushed Canada’s main trading partner into recession.

The Canadian currency notched its biggest one-day gain since October 17 after U.S. lawmakers on Tuesday approved a plan to prevent huge tax increases and delay spending cuts that were due to kick in this month.

The deal also was followed by price jumps in gold, oil and stocks. But attention quickly turned to issues left unresolved by the fiscal deal, such as the need to increase the U.S. debt limit. […]

The Canadian dollar closed at C$0.9852 to the greenback, or $1.0150. It had ended 2012 near C$0.9925, or $1.0076, at 4 p.m. Eastern (2100 GMT) on Monday, according to Thomson Reuters data. Read more here.
 

(STR Trade Report)

In its semiannual report on foreign exchange rate policies released Nov. 28, the Treasury Department again declined to name China or any other major trading partner as a currency manipulator. This report reviews the exchange rate policies of nine economies accounting for 70% of U.S. foreign trade and finds that while all of the major advanced economies have fully flexible exchange rates there are several major emerging market economies that manage their exchange rates to varying degrees.

The report emphasizes the need for greater exchange rate flexibility in China, stating that despite some encouraging developments the process of adjustment remains incomplete. On the positive side, estimates of the degree to which the yuan is undervalued have narrowed, and in July the International Monetary Fund put the figure at 5-10%. The report attributes this improvement to a significant decline in China’s current account surplus over the past four years, a 12.6% appreciation of the yuan against the dollar since June 2010 (and 40% since China initiated currency reform in 2005, although this trend briefly reversed itself earlier this year), a substantial reduction in the level of official intervention in exchange markets since the third quarter of 2011, and steps taken to liberalize controls on capital movements. On the other hand, the report states, “China’s exceedingly high foreign exchange reserves relative to those of other economies, the persistence of its current account and trade surpluses, and the insufficient degree of appreciation of the [yuan], especially given rapid productivity gains in the traded goods sector, suggest that the real exchange rate for the [yuan] remains significantly undervalued.”

However, some observers downplayed the report’s conclusions. “I would like to point out that the ratio of China’s current account surplus to GDP has been on a steady decline over the years, and the exchange rate of the yuan is approaching an equilibrium level,” Foreign Ministry spokesman Hong Lei said, according to The Wall Street Journal. “The exchange rate has little to do with the U.S. trade balance or employment,” added U.S.-China Business Council President John Frisbie, and “we need to move on to more important issues with China, such as removing market access barriers and improving intellectual property protection.”

With respect to other economies reviewed, the Treasury report makes the following observations.

- It remains important that Japan take fundamental and thoroughgoing steps to increase the dynamism of the domestic economy by easing regulations that unduly deter competition in its domestic economy.

- The U.S. will continue to press Korean authorities to limit their foreign exchange interventions to the exceptional circumstances of disorderly market conditions and to commit to greater foreign exchange market transparency, including through the publication of intervention data.

- European authorities have taken “very significant steps” to reduce financial stress in the region and the success of the next phase of the crisis response will hinge on rapid implementation of institutions that strengthen the euro and continued progress on economic reforms that support growth.
 

(Bloomberg View)

President Obama and Republican candidate Mitt Romney keep promising to be tough on China. Although their grievances are legitimate, simple-minded China-bashing is a dumb way to pursue them. Both countries will have to wise up if they want global trade to work to their benefit.

Romney’s pledge to declare China a “currency manipulator” as soon as he takes office is probably an empty threat. As Romney well knows, such a move – tantamount to imposing trade sanctions – would have little effect on China’s policies and spark a trade war that would hurt the United States at least as much as China.

That said, China does manipulate its currency. By deliberately holding down the exchange rate of the renminbi, it has made its exports artificially cheap and done real harm to producers in other countries, including the U.S. Although the renminbi has appreciated by 11 percent since Obama took office, the increase in China’s foreign reserves demonstrates that the currency is still cheap. The country’s rising dollar reserves also show how much China is still helping to finance the U.S. budget deficit – another complication for Americans who want to get tough.

China, though, isn’t alone in managing its exchange rate to boost exports. It just happens to be the biggest offender. Others include Japan, which is on track to edge out China as the U.S. government’s largest creditor. Read more here.
 

(CBC News)

The Bank of Canada said today it is keeping its interest rate at 1% – the same level since September 2010 – and has slightly increased its growth forecast to 2.2% from 2.1%.

The central bank’s governor, Mark Carney, indicated last week that it would be keeping the rate low for some time to encourage business investment.

Carney said economic growth hasn’t been as strong as previously projected.
 

(Terence Corcoran — Financial Post)

Day one’ threat against China will prove hollow. Romney vows to take action against Beijing, but his charge of “currency manipulation” has no basis in international trade law

For at least a year, the Republican candidate for president of the Unites States of America has been sabre-rattling over China trade. He raised his sabre again before the American people during his Tuesday night debate with President Barack Obama. On several occasions during the debate, Mitt Romney berated the president for failing to get tough on China, and then delivered what has become his standard one-liner: “On day one, I will label China a currency manipulator, which will allow me as president to be able to put in place, if necessary, tariffs where I believe that they are taking unfair advantage of our manufacturers.”

The qualifications are many in that little sentence. Mr. Romney says he would, after branding China a currency manipulator, be “able” to impose tariffs on China “if necessary.” He also narrowed the focus to specific cases of damage to U.S. manufacturers, opening another exit option should he actually find himself experiencing “day one” of a presidency. Read more here.
 

(International Business Times)

Federal Reserve Chairman Ben Bernanke on Sunday tried to refute arguments that the U.S. central bank’s aggressive monetary easing has sparked a global “currency war” that risks destabilizing emerging market economies.

Brazil has said U.S. monetary easing to keep interest rates low and weaken the dollar has hurt emerging economies.

“I have been arguing that ‘currency wars’ will only compound the world’s economic difficulties,” Brazilian Finance Minister Guido Mantega said in a statement delivered at the IMF’s annual meeting in Tokyo. “Trying to grasp larger shares of global demand through artificial means has many side effects.”

“It is a selfish policy that weakens the efforts for concerted action,” Mantega added. Read more here.
 

(Brookings Institution)

The global economic recovery is on the ropes, battered by political conflicts within and across countries, lack of decisive policy actions, and governments’ inability to tackle deep-seated problems such as unsustainable public finances that are stifling growth. Growth in global trade has weakened and the spectre of currency wars, with countries looking to maintain export competitiveness by keeping their currencies weak, has returned to the fore.

The Brookings-FT Tiger index shows growth momentum has dissipated in nearly all major advanced and emerging market economies. Central banks of the major advanced economies have responded with a range of conventional and unconventional policy monetary policy actions. These measures have put a floor on short-term financial market risks but have been unable to reverse declining growth momentum. As a result, financial markets continue to go through short-term cycles of angst and euphoria even as indicators of real economic activity remain mired in weakness. Read more here.