WASHINGTON — The Trump administration said Thursday that it planned to penalize countries that undervalue their currencies, the latest effort to prevent foreign competitors from trying to undercut American producers and import cheap goods into the United States.
Under a rule change proposed by the Commerce Department on Thursday, the United States would expand its ability to penalize countries that manipulate their currencies. The move, which could be aimed at China, Germany, South Korea and other countries, is likely to provoke controversy among foreign allies and could result in challenges at the World Trade Organization.
The department has proposed expanding a type of remedy that is typically used to levy tariffs on products that are determined to be unfairly subsidized by foreign governments. Under the proposed rule, so-called countervailing duties could be imposed when foreign governments “subsidize” their products by weakening their currencies relative to the United States dollar, the department said.
The Trump administration has argued that countries like China and Germany have built up their manufacturing industries in part by underpricing their currencies, which makes their goods artificially cheaper abroad. Officials say that has incentivized companies to locate their factories outside the United States and encouraged American consumers to buy more foreign products.
The proposed rule would build on a process that already exists at the Treasury Department to determine whether foreign countries manipulate their currencies.
If the Treasury Department decides another country has taken action to undervalue its currency, the Commerce Department will determine whether a tariff should be levied. That process would involve an investigation by both the Commerce Department and the bipartisan United States International Trade Commission.
The rule change could generate $3.9 million to $21 million in additional duties collected each year, if taken to its fullest extent, the Commerce Department said. The department was collecting public comments before the rule is finished.
A Treasury spokesman said that the proposal would not infringe on the department’s authority to determine if a country is a currency manipulator.
The Treasury Department has opted not to label countries like China as a currency manipulator, despite President Trump’s promises as a candidate to do so.
In its most recent currency report, last October, the Treasury Department criticized China’s trade and currency practices but still did not conclude that Beijing was improperly devaluing its currency, the renminbi. It did put China, along with Germany, India, Japan, Korea and Switzerland on its “monitoring list” for potential manipulation.
As a presidential candidate, Mr. Trump was sharply critical of China’s currency practices and promised to label China a manipulator if elected. However, China eased off the practice and it did not meet Treasury’s criteria for applying the label.
Steven Mnuchin, the Treasury secretary, has said that he is considering changing the criteria to broaden the definition of currency manipulation.
The Treasury Department was expected to release its biannual currency report in mid-April but it has yet to do so.
Proposals similar to what the Commerce Department is floating have been made in Congress before, although they have typically been championed by Democrats. In 2015, there was a congressional push for legislation that would give the government such authority, which ultimately failed.
Robert Lighthizer, the United States trade representative, was also an early proponent, arguing in 2010 that such a measure could help the United States deal with Chinese mercantilism.
The Commerce Department said that several methods could be used to determine which countries are currency manipulators, one of which would be based on the concept of a “real effective exchange rate,” which is used by the International Monetary Fund.
But designating a country a currency manipulator is often far from a clear decision. A wide variety of factors can influence exchange rates, including government purchases of currency or central bank moves, and labeling a country a currency manipulator involves ascribing intent.
The real issue is “who determines the right value,” said Gary Hufbauer, an economist and former senior fellow at the Peterson Institute for International Economics. “There is no agreed methodology for that,” he added.
Other countries have already complained about the aggressive way the Trump administration uses countervailing duties, which it has used to counter a flow of cheap goods like lumber and tomatoes.