Trade war worsens China accused of currency manipulation as it fights US tariffs

THE US Treasury Department labelled China a currency manipulator on Monday after Beijing pushed down the value of its yuan in a dramatic escalation of the trade conflict between the world’s two biggest economies.

The decision, which came hours after US President Donald Trump accused China of unfairly devaluing its currency, marks a reversal for Treasury, which in May declined to sanction China for manipulating its currency.

The US had not put China on the currency blacklist since 1994. The designation could pave the way for more US sanctions against China.

Earlier on Monday, China had allowed its currency to weaken to an 11-year low, a move that gives its exporters a price edge in world markets and eases the damage from US tariffs on Chinese products.

Mr Trump had gone on Twitter to denounce China’s move as “currency manipulation”.

He added: “This is a major violation which will greatly weaken China over time.”

In a statement, Treasury said it would work with the International Monetary Fund “to eliminate the unfair competitive advantage created by China’s latest actions”.

“This is an extraordinary action of hostility against a major trading partner, with little economic basis and again driven mostly by presidential whims,” said economist Eswar Prasad, former head of IMF’S China division.

“The timing and apparent logic for Treasury’s designation of China as a currency manipulator reeks of arbitrariness and retaliation.”

China’s central bank sets the exchange rate each morning and allows the yuan to fluctuate by 2 per cent against the dollar during the day. It can buy or sell currency – or order commercial banks to do so – to dampen price movements.

China’s central bank blamed the yuan’s drop on “trade protectionism” – an apparent reference to Mr Trump’s threat last Thursday to impose tariffs on the $300 billion in Chinese imports to the US.