Mexico says US trade deal will send a ‘signal’ on currency manipulation

Stacks of Mexican pesos and US dollar bills are arranged for a photograph inside a currency exchange in Mexico City, Mexico. (Bloomberg pic)

WASHINGTON: The US and Mexico will commit to maintain transparency over how they manage their currencies as part of their trade deal, a move that could establish a precedent for dealing with nations that have manipulated their exchange rates.

President Donald Trump announced Monday that he plans to sign a new trade deal with Mexico intended to replace the North American Free Trade Agreement. The pact with Mexico will add a clause that commits the countries to transparency in currency matters, Mexican Economy Minister Ildefonso Guajardo said Tuesday in an interview at Bloomberg’s Washington bureau. Negotiations for Canada to join the trade deal are taking place this week.

The foreign-exchange provision is intended as a “signal” to other countries outside North America that may have manipulated their currencies, Guajardo said, adding that there will be a system for resolving disputes over exchange-rate issues. “This is more or less to say, ‘Listen, the new standard for international treaties is going to be looking at this,’” he said.

Guajardo suggested that disputes over currency transparency could play out under Nafta’s Chapter 20 state-to-state settlement process.

Currency Policy
The currency language is unlikely to impact policy making among the Nafta nations, all of which have freely floating exchange rates. And countries already frequently commit to avoid unfair currency practices: In a statement from IMF meetings in April, nations said they “will refrain from competitive devaluations, and will not target our exchange rates for competitive purposes.”

But tougher language on foreign exchange in the Mexico accord could give the US leverage in trade negotiations with countries such as China.

During the presidential campaign, Trump promised to label China a currency manipulator. Since taking office, he has refrained from doing so, and the Treasury Department’s most recent semi-annual currency report on trading partners took a softer tone toward China’s policies.

Commerce Secretary Wilbur Ross on Tuesday complained about the weakness of the Mexican peso, saying it contributes to the US trade deficit.

“There have been multiple-year periods during which even though there had been some modest improvements in the minimum wage in Mexico in peso-denomination, there still was an actual decline in Mexican worker wages in dollar-denominated terms,” Ross said in an interview with Bloomberg Television. “So it’s a significant issue,” he said, adding that the US isn’t accusing Mexico of being a currency manipulator.

It wasn’t immediately clear how restrictive the new currency commitment will be. Loosely binding language may frustrate those who have called for tougher wording on currencies in trade deals, including US automakers and some American lawmakers.

US senators, including Republican Rob Portman and Democrat Sherrod Brown, pushed for a strong commitment to avoid currency manipulation in the Trans-Pacific Partnership, a trade deal that President Donald Trump withdrew from before lawmakers approved it. The 11 remaining nations approved the Asia-Pacific trade deal, without the US, earlier this year.