Throughout his campaign and during the opening weeks of his presidency, Donald Trump has lashed out against countries that he has said are taking advantage of the strength of the US dollar relative to their currency.
On the campaign trail, Trump promised that he would officially name China a currency manipulator on day one of his presidency. (He has not done so.)
Last week he attacked Japan, saying: “You look at what China’s doing, you look at what Japan has done over the years. They play the money market, they play the devaluation market, and we sit there like a bunch of dummies.”
Trump’s trade adviser, Peter Navarro, even took aim at Germany, saying the country was using a “grossly undervalued” euro to its advantage against other nations in the European Union and against the US.
But according to Deutsche Bank strategist Robin Winkler, none of those countries are the closest fit toward the Treasury’s definition of a “currency manipulator.” Winkler believes that honor goes to Switzerland, which is the closest to meeting the three criteria needed before the Treasury can name someone a “currency manipulator.”
First, here are the requirements:
The country must have a significant bilateral trade surplus with the US. The country has a "material" currency account surplus. The country is engaged in persistent one-sided intervention in the foreign exchange market.
Switzerland is on the edge of fulfilling all three requirements, according to Winkler. The country is running an account surplus of 10%, and its intervention in the FX market accounts for 9.1% of GDP. The only category in which Switzerland falls short is that it is running a $13 billion trade surplus versus the US, and the threshold sits at $20 billion. Winkler, however, thinks that Switzerland will cross that mark in as early as 2018.
While US trade with Switzerland is relatively small, any tariffs imposed by the US would have a profound impact on the Swiss economy. That's because Switzerland sends about 10.6% of its exports to the US, according to the CIA World Factbook, which Winkler says accounts for almost half of its net trade surplus.
Additionally, Winkler believes the 20% tariff that has been threatened by Trump would "put the same drag on the export sector as a hypothetical 8% appreciation of the TWI," or trade-weighted index.
So what should the Swiss National Bank do to avoid the wrath of Trump?
Winker thinks "the SNB letting EUR/CHF fall toward parity to avoid friction with the US may be the lesser evil for the Swiss export-oriented industry than incurring US retaliatory measures."