Donald Trump’s top trade adviser has hit out at Germany and accused the country of gaining an unfair trade advantage from the “grossly undervalued” euro.
In a sign that the Trump administration is targeting currencies in its approach to trade deals, Peter Navarro, the head of the US president’s new National Trade Council, told the Financial Times (£) that the euro was like an “implicit Deutsche Mark”.
Germany “continues to exploit other countries in the EU as well as the US with an ‘implicit Deutsche Mark’ that is grossly undervalued”, he said.
Navarro, an academic and outspoken critic of China’s negative impact on the American economy, added that Germany was one of the main obstacles to a trade deal between the US and the EU.
The comments sent the euro to an eight-week high against the dollar, and immediately drew a rebuff from the German chancellor, Angela Merkel. The euro’s weakness – and its move to near-parity with the dollar – has come after a period of low and even negative interest rates as well as a programme of monetary stimulus measures from the European Central Bank.
Speaking in Stockholm, Merkel said: “Germany is a country that has always called for the European Central Bank to pursue an independent policy, just as the Bundesbank did that before the euro existed.
“Because of that we will not influence the behaviour of the ECB. And as a result, I cannot and do not want to change the situation as it is.”
Many of the ECB policies – such as slashing interest rates and printing euros to buy government bonds – are unpopular in Germany, not least because they disadvantage the millions of savers in the country.
Former UBS chief economist George Magnus called the comments from Navarro about the euro “hogwash” because it was not “Germany’s currency to influence or manage”.
Michael Hewson, chief market analyst at CMC Markets, said: “Any pretence that the US would be pursuing a so-called ‘strong dollar policy’ appears to have been blown to shreds today after Peter Navarro, one of Donald Trump’s top trade advisers, took aim at Germany for implicitly targeting a lower euro in order to give itself a competitive advantage over its main trading partners, sending the US dollar sharply lower.
“While this overlooks the fact that the ECB sets monetary policy for the whole euro area, and not just Germany, this distinction isn’t likely to figure too highly with the new US administration, which seems determined to upset the status quo in any way possible.”
Vasileios Gkionakis, global head of foreign exchange strategy at UniCredit Research, said: “This is quite strong and unusual rhetoric coming from a very senior trade adviser to the US president. First, and since it comes just days following the president’s comments about the ‘too strong dollar’, it suggests that the US administration sees the exchange rate as one of the main anchoring points for the deployment of its trade policies.
“Secondly, and perhaps more importantly, it adds an additional layer of confusion and inconsistency in this twisted web of incoherent policies: a shift towards a ‘weak dollar policy’ is at odds with the imposition of tariffs (which tend to lead to exchange-rate appreciation – ignoring for the moment the possibility of retaliation).”
