U.S. to shift on China cur­rency

Los Angeles Times - - BUSINESS -

Trump plans to stop la­bel­ing Bei­jing as a cur­rency ma­nip­u­la­tor ahead of a trade deal, sources say.

Pres­i­dent Trump’s ad­min­is­tra­tion plans to lift its des­ig­na­tion of China as a cur­rency ma­nip­u­la­tor, peo­ple fa­mil­iar with the mat­ter said, re­mov­ing an ob­sta­cle to a trade deal the two na­tions are set to sign this week.

The Trea­sury Depart­ment will make the move in a semi­an­nual re­port, ex­pected to be re­leased soon, af­ter be­ing de­layed as the U.S. and China fi­nal­ize a “phase one” trade pact, said the peo­ple, who spoke on the con­di­tion of anonymity.

Trea­sury Sec­re­tary Steven T. Mnuchin in Au­gust first for­mally la­beled China a cur­rency ma­nip­u­la­tor, a move that fur­ther es­ca­lated the trade war with Bei­jing af­ter the coun­try’s cen­tral bank al­lowed the yuan to fall in re­tal­i­a­tion to new U.S. tar­iffs.

A Trea­sury Depart­ment spokes­woman de­clined to com­ment. A re­porter for Fox Busi­ness Net­work ear­lier tweeted the news about Trea­sury’s plans.

Now that a deal is in sight, the des­ig­na­tion is be­ing lifted. The ad­min­is­tra­tion had at one point con­sid­ered main­tain­ing the la­bel and in­stead an­nounc­ing it would mon­i­tor the yuan with the pos­si­bil­ity of lift­ing the des­ig­na­tion in Au­gust of this year, ac­cord­ing to the peo­ple fa­mil­iar with the mat­ter.

The off­shore Chi­nese yuan strength­ened to 6.883 per dol­lar on Mon­day.

Mnuchin’s Au­gust 2019 an­nounce­ment prompted au­thor­i­ties in Bei­jing to in­crease trans­parency around how they man­age the yuan. Some of the data have pro­vided sup­port for the Trea­sury’s view that the Peo­ple’s Bank of China en­gages in com­pet­i­tive de­val­u­a­tions of its cur­rency, the peo­ple said.

But econ­o­mists have crit­i­cized the U.S. de­ci­sion to call China a ma­nip­u­la­tor.

The In­ter­na­tional Mon­e­tary Fund said in Septem­ber that the yuan is fairly val­ued and that there’s no ev­i­dence of ma­nip­u­la­tion. China’s weak­en­ing cur­rency could also be at­trib­uted to a slow­down in growth.

China also doesn’t meet the cri­te­ria out­lined in a 2015 U.S. law for for­mally des­ig­nat­ing a coun­try a cur­rency ma­nip­u­la­tor.

Mnuchin in­stead re­lied on a 1988 trade law that has a looser def­i­ni­tion of cur­rency ma­nip­u­la­tion to jus­tify the claim. He did so af­ter the yuan broke the 7-per-dol­lar level for the first time since 2008, draw­ing Trump’s ire. Mnuchin had re­sisted us­ing the la­bel in the pre­vi­ous five re­ports he re­leased.

The Au­gust an­nounce­ment was made in a press re­lease, out­side the nor­mal is­suance of the re­port. That left cur­rency strate­gists and pol­icy ex­perts with­out a full ex­pla­na­tion for the de­ci­sion.

Trea­sury’s cur­rency re­port ex­am­ines 20 coun­tries for pos­si­ble cur­rency ma­nip­u­la­tion, a num­ber that was in­creased from 12 in May.

Trump was in­volved in draft­ing the press re­lease, which on his di­rec­tion refers to China as a “Cur­rency Ma­nip­u­la­tor,” us­ing cap­i­tal letters, one of the peo­ple said.

When Trea­sury of­fi­cials briefed con­gres­sional com­mit­tees in Au­gust on their de­ci­sion, they read quotes by Chi­nese lead­er­ship of­fi­cials stat­ing that they had all the nec­es­sary tools to prop up the yuan.

Ac­cord­ing to the Trea­sury of­fi­cials, those state­ments prove in­tent and serve as ev­i­dence that the coun­try was ma­nip­u­lat­ing its cur­rency, two peo­ple fa­mil­iar with the brief­ings said.

Mnuchin in Oc­to­ber said that if a trade deal with China were signed, he would con­sider re­mov­ing the ma­nip­u­la­tor tag.

Nicolas As­fouri AFP/Getty Im­ages

PRES­I­DENT TRUMP greets Chi­nese Pres­i­dent Xi Jin­ping dur­ing a busi­ness lead­ers event in Bei­jing in 2017. The White House plans to lift China’s cur­rency ma­nip­u­la­tor des­ig­na­tion ahead of an ex­pected trade deal.

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