The United States on Monday (Jan 13) removed the currency manipulator label it imposed on China last summer, a sign of easing tensions between the economic powers after nearly two years of conflict.
Just two days before US President Donald Trump is set to sign a “phase one” deal, the US Treasury said in its semi-annual report to Congress that the yuan has strengthened and Beijing is no longer considered a currency manipulator. In this trade deal, “China has made enforceable commitments to refrain from competitive devaluation and not target its exchange rate for competitive purposes,” the Treasury said.
It would also undo the major escalation from August by US President Donald Trump, who made good on a campaign pledge to brand Beijing a currency manipulator. Trump in August angrily accused Beijing of weakening its currency “to steal our business and factories,” re-stating a long-standing grievance.
Chinese authorities in August allowed the yuan to fall below 7 to the dollar for the first time in a decade, sending shudders through stock markets at the time and stoking Trump’s ire. Though the semi-annual currency report always gains attention as a key sign of relations between the powers, the currency manipulator designation was largely symbolic. The label calls for the US Treasury committed to work with the International Monetary Fund to “eliminate the unfair competitive advantage” created by China’s alleged actions and to consult with Beijing about the matter.
As part of the trade deal, “China has also agreed to publish relevant information related to exchange rates and external balances.” However, many economists questioned the decision to label China a manipulator in the first place.
“China shouldn’t have been designated to start with. Small current account surplus/GDP; scant intervention,” Mark Sobel, a former Treasury official, said on Twitter.
While he acknowledged the large trade surplus, he said “economists disregard those”. “RMB fell in response to Trump’s tariffs. Designation was blatant/errant political act,” Sobel tweeted. And China expert Martin Chorzempa said the announcement was getting “way more attention than it should, because it matters only on the most superficial symbolic level.”
Treasury Secretary Steven Mnuchin said the phase one deal is significant and “will lead to greater economic growth and opportunity for American workers and businesses.”
However, Treasury said Beijing still needs to take steps “to stimulate domestic demand and reduce the Chinese economy’s reliance on investment and exports.”
Top Chinese trade envoy Liu He arrived Monday in Washington on Monday ahead of Wednesday’s expected signing of the agreement. The currency report had eight other countries on the “monitoring list” due to concerns about their currency practices: Germany, Ireland, Italy, Japan, South Korea, Malaysia, Singapore, Switzerland, and Vietnam.
Meanwhile, the US Trade Representative’s Office announced over the weekend that, to implement the agreement due to be signed Wednesday, Washington and Beijing will hold “at least bi-annual” meetings.
Mnuchin and Federal Reserve Governor Jay Powell are also due to conduct macro-economic meetings with top Chinese officials “on a regular basis,” the trade representative’s office said.