Trump adviser Navarro accuses Germany of 'exploiting' EU with cheap euro

Peter Navarro, chief of US President Donald Trump's new trade council, has attacked Germany for "exploiting" other European Union members with a “grossly undervalued” euro.

Trump's 'trade czar' told the Financial Times that the low value of euro, which he denounced as an “implicit Deutsche Mark”, was providing Germany a major trade advantage over both its EU partners and the US.

News of the statement sent the euro spiking against the dollar in the moments after the newspaper published the report online around midday on Tuesday.

University of California, Irvine business professor Navarro, best known as a China hawk through books including The Coming China Wars and Death by China, was appointed leader of the new White House National Trade Council, serving as director of trade and industrial policy.

Allied with recent comments from US Treasury Secretary Steve Mnuchin and Trump himself, who have both said the US dollar is too strong, analysts said it appeared the Trump administration saw currencies as one of the main tools to accomplish its goal of realigning global trade back in favour of the US worker.

"A weaker dollar on top of import tariffs will be another disincentive for US companies to manufacture abroad. The comments from Donald Trump’s team will irk Angela Merkel’s Germany," said Jasper Lawler at London Capital Group.

"The truth hurts. It’s well understood that the euro is weaker than the Deutsche Mark and stronger than the Spanish peseta or Greek drachma would have been, which tilts trade in favour of the more industrious Germany.

He said White House criticism of the euro in the context of Brexit and the rise of populist candidates like Marine Le Pen in upcoming European elections puts "Eurozone breakup risk at the highest since the bloc’s inception".

Perhaps more importantly, said Vasileios Gkionakis, global head of FX strategy at UniCredit, the comments add "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).

"And needless to say, a stronger USD is difficult to reconcile with the creation and protection of manufacturing jobs domestically. So the market smells political inconsistency…and this is happening at a difficult point for the dollar."

Navarro's hard-line approach

A paper written by Navarro and new Secretary of Commerce Wilbur Ross last September, entitled 'Scoring the Trump Economic Plan' is said to be the primary road map for Trump’s policies, with a new hard-line approach to managing global trade.

The paper argued that as the US boasts the largest and most advanced economy in the world, previous administrations have failed to leverage this heavy advantage when negotiating free trade deals and other international agreements.

Navarro and Ross also argued it was a great injustice that the majority of World Trade Organisation member countries assess import and export valued added taxes (VAT) in addition to customs duties against US products, while the US does not assess VAT against any imports.

In his books Navarro has urged Americans to avoid buying products made in China, highlighting the loss of American manufacturing jobs at a time of Chinese economic growth.