WASHINGTON – For seven years, the United States has fought to keep the eurozone intact, urging European officials toward action and supporting international bailout programs to keep the 17-nation currency union from cracking apart.
That appears to have changed less than two weeks into Donald Trump’s new administration.
A sharp shift in tone toward Germany, casting the euro as fuel for that country’s massive trade surplus, has raised concerns that the U.S. president’s trade-centric world view may see the euro not as a geopolitical plus, but as another needless bit of multilateralism.
While Trump has refrained from commenting directly on the euro, he praised Britain’s decision to exit the European Union as a “great thing” and predicted that others will leave the bloc as the result of an influx of refugees.
In comments published in the European press Tuesday, Trump trade adviser Peter Navarro said the “grossly undervalued” euro serves as a currency for Germany alone, allowing the country to “exploit” the United States and others.
On Capitol Hill, Treasury Secretary-designate Steven Mnuchin softened the traditional U.S. “strong dollar” mantra, suggesting that the dollar’s current strength may be working against what has become perhaps the administration’s central economic priority: reviving U.S. manufacturing and exports.
Framed narrowly, that could put the United States on a clear collision course with Germany, the world’s fourth-largest economy and home to companies that rival top U.S. industrial giants, as it is with Mexico or China.
“There seems to be this desire to go back to a divide and conquer style strategy where the U.S. negotiates against individual countries,” said Douglas Rediker, executive chair of International Capital Strategies and a former U.S. executive board member at the International Monetary Fund.
“To single (Germany) out when they don’t have authority to manipulate their currency, requires you to make a leap — which is to say that ‘We don’t care that there actually is a common currency. We are going to take you to account.’ “
Monetary policy in the eurozone is set by the European Central Bank, and it is the ECB’s money creation policies that have contributed to the euro’s recent decline in value.
Like the U.S. Federal Reserve’s quantitative easing, those efforts have been regarded internationally as a reasonable response to the region’s dangerous economic weakness — not as an effort to cheapen the currency to gain a trade advantage.
“The question is how far will the new administration go with this?” said Jeromin Zettelmeyer, a senior fellow at the Peterson Institute for International Economics and a former German economic official.
Trump could, for example, try to tax German goods to offset any perceived advantage gained from a cheap euro, Zettelmeyer said. An import duty has already been suggested as a way to redress alleged currency manipulation by China.
“Trump seems to think that having a trade deficit with another country means that the other country is somehow stealing or at least getting the better deal,” said Zettelmeyer.
The first days of Trump’s administration have touched off a wave of anxiety in Europe. European Council President Donald Tusk went so far as to list the new government in Washington among the chief “external” threats faced by Europe.
Criticism of Germany’s trade surplus, however, is not unique to Trump.
The Treasury Department under President Barack Obama added Germany to a “watch list” because of its large trade imbalances. The U.S. trade deficit with Germany stood at $77 billion as of 2015, three times that of other European Union countries combined, and $20 billion more than the deficit with Mexico, one of Trump’s other economic nemeses.
But for Obama officials, the aim was to get Germany to spend more and boost its imports of goods from the rest of Europe and the rest of the world. It was not to target the euro’s value and, by extension, the steps taken by the ECB to revive European growth more broadly.
Partly under American influence, the Group of 20 nations, including China, has in recent years agreed to consensus language that countries would “refrain from competitive devaluations.”
They have also generally avoided criticizing each other’s central banks. That diplomacy is credited at least in part for China’s recent shift toward a more flexible currency regime that organizations like the International Monetary Fund feel have brought the yuan currency close to fair market value.
In their last report on the eurozone, IMF staff said they did think the euro was undervalued. But they said the range could be anywhere from 0 to 10 percent, though likely larger for Germany.
“The consequences (of a protectionist United States) affect us Germans as a leading export and import nation particularly hard,” Federation of German Industries chief Dieter Kempf said in a speech in Berlin after the Navarro comments.
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