Steven Mnuchin

Will Trump’s New Treasury Secretary Start a Trade War with China?

Steven Mnuchin has so many fun tasks ahead of him.
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Late Monday night, former Goldman Sachs partner turned hedge-fund manager turned movie producer turned “Foreclosure King” Steven Mnuchin was confirmed as Donald Trump's secretary of the treasury. High on his to-do list? Figuring out how, precisely, to channel Trump’s antipathy toward China—which he has repeatedly referred to as a currency manipulator—into policy that will please the boss without sparking a full-blown trans-Pacific trade war.

Even though Trump threatened during the whole of his campaign to officially label China a currency manipulator “from day one,” other things, like ejecting immigrants and defending the honor of his 35-year-old daughter, Ivanka, have occupied much of his time. He was also forced to walk back some of his more aggressive rhetoric on China after Beijing not-so-subtly indicated that America’s continued commitment to its “One China” policy would be a precondition for any negotiations. His daughter and son-in-law, Jared Kushner, subsequently got him to write a nice note to President Xi Jinping in which he made a careful about-face on Taiwan. All of which leaves Mnuchin in a difficult position on his first day in office as he attempts to translate the president’s inconsistent anti-China rhetoric into action.

So what’s a new treasury secretary to do? First, attempt to smooth things over with the G-20 finance ministers who probably haven’t been thrilled by the Trump administration’s habit of “singling out top trading partners China, Japan, Mexico, and Germany for running large trade surpluses.” And second, according to a report by The Wall Street Journal, potentially take a new approach, in concert with the secretary of commerce, “to discourage China from undervaluing its currency to boost exports” that steps away, ever so slightly, from Trump’s unique style of tearing countries new orifices when a little diplomacy might be worth a shot instead.

Under the plan, the commerce secretary would designate the practice of currency manipulation as an unfair subsidy when employed by any country, instead of singling out China, said the people either briefed on or involved in formulating the policy. U.S. companies would then be in a position to bring anti-subsidy actions themselves to the U.S. Commerce Department against China or other countries.

The currency plans are part of a China strategy being assembled by the White House’s new National Trade Council, which seeks to balance the goals of challenging China while still keeping relations with the country on an even keel. To do that, measures taken against China would also apply to other nations.

The administration would avoid, at least for now, making confrontational claims about whether China is manipulating its currency for trade benefit, the people said.

Those other nations might include Germany, which Peter Navarro recently accused of currency manipulation; Mexico and Canada, whose currencies commerce secretary nominee Wilbur Ross recently “sent down after saying that renegotiating trade deals with the respective nations would be a priority”; and Japan, which Trump has claimed “play[s] the devaluation market and we sit there like a bunch of dummies,” although perhaps they’ll get a pass after this past weekend’s golf trip.

As Axios notes, officially labeling currency manipulation an “unfair subsidy” is effectively meaningless, since currency manipulation is already considered unfair by definition. Labeling another country as a currency manipulator is similarly a largely symbolic act, initiating a process of negotiations that could lead to legal actions but will not necessarily do so.

Few people outside Wall Street understand or care about the intricacies of trade negotiations or currency movements, which leaves Trump and Mnuchin plenty of room to pursue symbolic policies that give the administration a nice talking point without, hopefully, nuking U.S.-China relations. In this case, perhaps, the White House’s bark will be worse than its bite.