The Trump administration on Monday designated China a “currency manipulator,” after the country’s central bank allowed its currency to weaken amid the ongoing trade dispute.
The move comes hours after Trump accused Beijing of depreciating its currency on Twitter, adding later that such measures have been used to “steal our business and factories, hurt our jobs, depress our workers’ wages and harm our farmers’ prices. Not anymore!”
The People’s Bank of China allowed its currency to fall below 7 yuan to the American dollar, which is considered to be a psychologically important marker, for the first time in a decade. The move was seen as a retaliatory measure following Trump’s threat to slap a 10% tariff on $300 billion of Chinese goods.
The yuan’s depreciation comes amid a longstanding trade war between Washington and Beijing as each side has slapped economic penalties alongside on-again, off-again negotiations.
Presidents have often used the twice-a-year currency report as a diplomatic tools while engaging with countries that are seen as having exchange rates that harm US jobs and economic growth.
The United States hasn’t labeled a country a currency manipulator since it tagged China in the early 1990s, under President Bill Clinton. Designating a country doesn’t immediately trigger penalties, but it is seen by other governments as a provocation.
Treasury has repeatedly declined to label China a currency manipulator, despite Trump’s pledge to do so during his 2016 campaign. Instead, the country was placed on Treasury’s “monitoring list” in its review of US trading partners along with eight other countries.
Treasury’s report highlighted “significant concerns” over the meaningful depreciation of China’s currency against the US dollar, a critical component of ongoing trade talks, and urged China to take steps to avoid “a persistently weak currency.”
But on Monday Treasury said China’s central bank openly acknowledged that it has “extensive experience manipulating its currency and remains prepared to do so on an ongoing basis,” pointing to an earlier statement released by the People’s Bank of China.
The PBOC’s statement noted that it “has accumulated rich experience and policy tools, and will continue to innovate and enrich the control toolbox, and take necessary and targeted measures against the positive feedback behavior that may occur in the foreign exchange market.”
Trump has repeatedly argued that the Chinese have depreciated their currency slowly in the last year to help offset tariffs on billions of dollars of Chinese goods amid an ongoing trade war between the two major economic superpowers.
[CNN]
Reality
Donald Trump knows nothing about economics and it’s again abundantly clear after he labeled China a currency manipulator after the yuan dropped 1.7 percent, claiming China purposefully forced the yuan down.
The reality is the yuan’s decrease was from three different forces, first trade wars can cause a country’s currency to plunge. For example this happened to Mexico during Trump’s trade war for NAFTA 2.0.
(See: https://www.cnbc.com/2019/05/31/peso-plunges-vs-the-us-dollar-after-trump-announces-mexican-import-tariffs.html)
Second, a stronger dollar causes other countries currencies to devalue in relation. This is basic economics. As a side note Donald Trump doesn’t want a stronger dollar and has tried to get the Fed to artificially weaken the dollar. You know… manipulate currency.
(See: https://www.investopedia.com/terms/d/devaluation.asp)
Finally China had actually been propping up the yuan during Trump’s trade wars, the action China took was to just stop and accepting current market forces. Again, China most likely stopped fighting market headwinds as retaliation to Trump’s escalation of his trade wars, so the correct assessment is they were artificially manipulating the currency before by propping it up, but Trump is saying they are manipulating the currency now, which is just plain incorrect.
(See: https://www.ft.com/content/9d24c1ca-b7cd-11e9-96bd-8e884d3ea203)
Trump is speeding us into a Smoot-Hawley scenario, which exacerbated the Great Depression, and will make the next recession worse than it normally will be with his backwards understanding of basic economics.
