China was dropped

The Washington Post - - FRONT PAGE - BY DAVID J. LYNCH [email protected]­

from the Trea­sury Depart­ment’s list of “cur­rency ma­nip­u­la­tors” ahead of the sign­ing of a trade deal.

The Trea­sury Depart­ment on Mon­day dropped China from a list of na­tions it al­leges ma­nip­u­late cur­rency val­ues to gain an un­fair trade ad­van­tage, greas­ing the wheels for the sched­uled sign­ing of a U.S.- China trade deal Wed­nes­day.

In a semi­an­nual re­port, depart­ment of­fi­cials said no coun­tries met the stan­dards set by Congress for the “ma­nip­u­la­tor” la­bel. But the po­lit­i­cal con­text for the de­ci­sion was hard to miss.

“The Trea­sury Depart­ment has helped se­cure a sig­nif­i­cant Phase One agree­ment with China that will lead to greater eco­nomic growth and op­por­tu­nity for Amer­i­can work­ers and busi­nesses,” Trea­sury Sec­re­tary Steven Mnuchin said. “China has made en­force­able com­mit­ments to re­frain from com­pet­i­tive de­val­u­a­tion, while pro­mot­ing trans­parency and ac­count­abil­ity.”

The move re­versed the depart­ment’s de­ci­sion in Au­gust to add China to the list. It also came two days be­fore Pres­i­dent Trump is sched­uled to sign a par­tial trade deal with China in a White House cer­e­mony that is ex­pected to dis­close the de­tails of Chi­nese prom­ises on its cur­rency and other trade mat­ters.

Scott Kennedy, a spe­cial­ist on the Chi­nese econ­omy at the Cen­ter for Strate­gic and In­ter­na­tional Stud­ies, said putting China on the list last year had been a “po­lit­i­cal step” de­signed to pres­sure Bei­jing in the mid­dle of trade talks.

David Dol­lar, a se­nior fel­low at the Brook­ings In­sti­tu­tion and a former Bei­jing-based Trea­sury Depart­ment of­fi­cial, said that “China has not been ma­nip­u­lat­ing its cur­rency, so this is just rec­og­niz­ing re­al­ity.”

“The phase-one deal con­firms this,” he said, “so it would have been in­con­sis­tent for the U.S. to sign the deal and con­tinue to call China a ma­nip­u­la­tor.”

The ad­min­is­tra­tion shift was de­nounced by some law­mak­ers. “China is a cur­rency ma­nip­u­la­tor — that is a fact,” said Se­nate Mi­nor­ity Leader Charles E. Schumer (D-N.Y.). “Un­for­tu­nately, Pres­i­dent Trump would rather cave to Pres­i­dent Xi [Jin­ping] than stay tough on China.”

The Trea­sury Depart­ment re­port crit­i­cized Bei­jing for turn­ing away from eco­nomic lib­er­al­iza­tion to a more state-directed ap­proach and “in­creas­ing re­liance on non-mar­ket mech­a­nisms.”

China’s grow­ing use of gov­ern­ment sub­si­dies and co­er­cive trade prac­tices was “dis­tort­ing” its re­la­tion­ships with key trad­ing part­ners, the re­port added.

Trump has long ac­cused China of de­press­ing the yuan’s value to make its prod­ucts more af­ford­able for for­eign cus­tomers, thus con­tribut­ing to the chronic trade im­bal­ance with the United States.

One dol­lar now buys about 6.9 yuan, lit­tle changed from Au­gust and up about 2 per­cent over the past year.

De­spite Trump’s pre­vi­ous claims, the In­ter­na­tional Mon­e­tary Fund has said re­peat­edly that the yuan is fairly val­ued.

In re­cent years, Bei­jing has oc­ca­sion­ally in­ter­vened in cur­rency mar­kets to sup­port the yuan’s value, not re­duce it, said Eswar Prasad, the former head of the IMF’S China unit.

Chi­nese au­thor­i­ties fear that an ex­ces­sively weak cur­rency would only en­cour­age res­i­dents to try to evade of­fi­cial con­trols and send their money out­side the coun­try, fur­ther de­press­ing the yuan.

As a pres­i­den­tial can­di­date, Trump promised to brand China as a ma­nip­u­la­tor in his first day in of­fice. In­stead, Mnuchin opted not to des­ig­nate China in 2017 or 2018, since Bei­jing’s be­hav­ior did not meet spe­cific cri­te­ria de­tailed in a 2015 law.

In Au­gust, Mnuchin added China to the list in re­sponse to pres­sure from the pres­i­dent, even though many econ­o­mists said the la­bel was in­cor­rect.

Mnuchin’s de­ci­sion came at a time when China was not in­ter­ven­ing in cur­rency mar­kets as it had in the years af­ter it joined the World Trade Or­ga­ni­za­tion in 2001. China’s global trade sur­plus is roughly one-tenth its 2007 size.

With the United States and China call­ing a truce in their two-year-long trade con­flict, the Trea­sury Depart­ment’s about­face this week was not a sur­prise. La­bel­ing a coun­try a “cur­rency ma­nip­u­la­tor” is a mostly sym­bolic step that re­quires depart­ment of­fi­cials to launch con­sul­ta­tions with the of­fend­ing na­tion.

The Trea­sury Depart­ment said it would mon­i­tor the cur­rency prac­tices of China and nine other U.S. trad­ing part­ners: Ger­many, Ire­land, Italy, Ja­pan, South Korea, Malaysia, Sin­ga­pore, Switzer­land and Viet­nam.


A Hong Kong cur­rency ex­change shop shown in June. The United States and China are set to sign a first-phase trade deal this week.

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