Trade Cases

Treasury: China Not a Currency Manipulator

Written by Sandy Williams

January 13, 2020

With a new trade deal in the works, the U.S. has declared that China is no longer a currency manipulator after labeling it one last summer.

In August 2019, Treasury Secretary Steven Mnuchin, “under the auspices of President Trump,” determined that China was devaluating its currency to “gain an unfair competitive advantage in international trade.”

In a report to Congress on Monday, the Treasury wrote:

“Intensive trade and currency negotiations between the United States and China over the last few months resulted in a Phase One agreement that requires structural reforms and other changes to China’s economic and trade regime in several key areas, including currency and foreign exchange issues. In this agreement, China has made enforceable commitments to refrain from competitive devaluation and not target its exchange rate for competitive purposes. China has also agreed to publish relevant information related to exchange rates and external balances. Meanwhile, after depreciating as far as 7.18 RMB per U.S. dollar in early September, the RMB subsequently appreciated in October and is currently trading at about 6.93 RMB per dollar.

“In this context, Treasury has determined that China should no longer be designated as a currency manipulator at this time.”

China will be kept on the currency monitoring list along with Japan, Korea, Germany, Italy, Ireland, Singapore, Malaysia, Vietnam and Switzerland. Currently, none of the countries on the watch list are considered currency manipulators.

On Tuesday, the Chinese yuan strengthened to its highest level in five months, trading at 6.8954 against the U.S. dollar.

“China has never been a currency manipulator and the United States’ latest conclusion is in line with the truth and international consensus,” Chinese foreign ministry spokesman Geng Shuang told reporters in Beijing on Tuesday. “China will continue to deepen our currency market reform, improve our currency system and keep the rate basically stable at an equilibrium level.”

Some analysts agree that China never met the criteria of a currency manipulator in 2019. The designation was a campaign promise made by Trump, finally fulfilled in August after the Treasury failed to find justification in five previously issued reports.

“They did it for political reasons,” Chad P. Bown, an international trade expert at the Peterson Institute for International Economics, told the New York Times. “Clearly there was no legal basis or really an economic basis to do so.”

Senate Minority Leader Charles Schumer (D-NY) criticized the decision of the Treasury. “ China is a currency manipulator—that is a fact. Unfortunately, President Trump would rather cave to President Xi than stay tough on China,” said Schumer in a statement Monday. “When it comes to the president’s stance on China, Americans are getting a lot of show and very little results.”

“It’s absolutely being used as a bargaining tool,” John Doyle, a foreign currency strategist at Tempus Inc., said in a comment to Bloomberg. “We will look at that report now and wonder: Who are they going to flip on next if it’s politically convenient to get a deal done?”

The steel industry had called for the designation for years and welcomed the labeling in 2018.

Sandy Williams

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