Trump defends U-turn on China
North Korea puts currency manipulation charge on backburner
President Trump on Sunday defended his reversal on a vow to label China a currency manipulator, suggesting the move is part of a plan to persuade China to work with the U.S. to confront North Korea’s missile buildup.
“Why would I call China a currency manipulator when they are working with us on the North Korean problem?” Trump tweeted. “We will see what happens.”
During his presidential campaign, Trump promised repeatedly to brand China a currency manipulator because of its past efforts to drive down the value of the renminbi to gain a trade advantage. But in a report to Congress on Friday, the Treasury Department acknowledged China in recent years has been taking steps to bolster the renminbi’s value. That strategy has been aimed at preventing a flight of capital from the country.
As a result, the Trump administration would have been viewed as a “laughingstock” if it had branded China a currency manipulator, says Edwin Truman, for- mer assistant U.S. Treasury secretary for international affairs. The currency manipulator label could have triggered negotiations between the countries and eventually potential U.S. retaliation, such as tariffs.
Instead, the administration’s first twice-yearly currency review singled out China and five other countries as needing to be monitored for their currency practices. The countries — China, Japan, Germany, South Korea, Taiwan and Switzerland — were the same six named in the last currency report issued by the Obama administration in October.
Still, Treasury assailed China for driving down the value of its currency for about a decade, a move that hammered U.S. companies and workers. “The distortion in the global trading system resulting from China’s currency policy over this period imposed significant and long-lasting hardship on American workers and companies,” the report said.
The campaign to weaken the renminbi vs. the dollar made Chinese imports cheaper for U.S. consumers and U.S. exports more expensive for Chinese buyers, widening the nation’s trade deficit with China. For goods, the U.S. trade gap with China was $347 billion in 2016, down just 5% from its peak in 2015.
Treasury hasn’t branded any nation a currency manipulator — a highly charged assertion — since the Clinton administration labeled China as such in 1994. Because it had been more than two decades since any country had been named a currency manipulator, Congress in 2015 changed the law to require Treasury to put countries on a less onerous “monitoring ” list.
The three criteria Treasury must use to determine whether a nation should be placed on the list are: the size of its trade surplus with the U.S., the size of its current account trade surplus with the rest of the world, and the number of times it has intervened in currency markets in recent months. China’s current account surplus, which indicates whether a nation is a net lender to the rest of the world, fell to 1.8% of its gross domestic product last year from 2.8% in 2015.