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US Treasury will no longer designate China as a currency manipulator

The United States has ended its designation of China as a currency manipulator seeking unfair advantages.
The United States has ended its designation of China as a currency manipulator seeking unfair advantages.Jeenah Moon/New York Times/2019

WASHINGTON — The Trump administration was expected to remove China’s designation as a currency manipulator, two days before President Trump and senior Chinese officials planned to sign an initial trade agreement.

The Treasury Department was expected to release its long delayed currency report Monday afternoon, offering its first public analysis of China’s currency practices since it tagged China as a manipulator in August, at Trump’s direction. The report was expected to outline some of the commitments that China made to improve transparency around its management of the renminbi.

As part of the trade deal that Trump will sign Wednesday, China and the United States are expected to agree that they will avoid devaluing their currencies to achieve a competitive advantage for their exports.

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Trump has long been critical of China’s currency practices, arguing that Beijing weakens the yuan to make Chinese exports cheaper in the United States. Trump accused China of doing just that in August, when Beijing allowed its currency to weaken, saying it was an attempt to blunt the effect of tariffs he had imposed on Chinese imports.

Last month, the US trade representative said the trade deal would include a currency chapter that details “high-standard commitments to refrain from competitive devaluations” and targeting of exchange rates. The agreement is expected to include a mechanism for enforcing that commitment, which the Office of the United States Trade Representative said would ensure that China cannot use its currency practices to compete unfairly against American exporters.

The United States last labeled China as a currency manipulator in 1994. The designation, while seen as a type of public shaming, is largely symbolic .The label is supposed to trigger discussions between the United States, the International Monetary Fund, and the Chinese government on how China can make its currency more fairly valued. The IMF said in a report released last year that China’s currency was fairly valued.

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While most economists agreed that China had been distorting the value of its currency more than a decade ago, in recent years it has been allowing market forces to play a role in letting the yuan fluctuate within a set range. For much of last year, Chinese officials had actually been propping up the yuan amid a weakening economy to prevent its value from falling too quickly.

“China’s foreign exchange reserves, a key indicator of the degree of foreign exchange market intervention, has been quite stable over the last year, said Eswar Prasad, former head of the International Monetary Fund’s China division. “While China still has a sizable trade surplus with the US, its overall current position is near balance, further undercutting the characterization of China as a currency manipulator.”

China’s currency practices have long captured the attention of Trump, who promised as a presidential candidate to slap the label on China. Yet his Treasury secretary, Steven Mnuchin, opted not to do so in the first five reports that his department issued. The department said China did not meet Treasury’s criteria for currency manipulation.

As trade negotiations with China dragged on last summer, Trump grew increasingly frustrated and seized upon China’s weakening currency as another source of leverage. Despite Mnuchin’s resistance, he used his discretion to impose the label at the urging of Trump.

“They did it for political reasons,” said Chad P. Bown, an international trade expert at the Peterson Institute for International Economics in Washington. “Clearly there was no legal basis or really an economic basis to so.”

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Bown said that removing the label made sense now that the first phase of the trade deal is complete and that China probably was unhappy with the optics of being deemed a manipulator.

Senior Chinese officials arrived in Washington on Monday to put the finishing touches on the trade agreement, which will be signed at the White House on Wednesday.

The White House and the Treasury Department declined to comment on the report, which is required by law to be published twice a year and was scheduled to be released in October.

Treasury officials have been coy about the status of the report in recent months, and Mnuchin has suggested that the delay stemmed from the department’s busy schedule.

Critics of the Trump administration’s currency policy have argued that the president has undermined the credibility of the foreign exchange report by throwing the manipulation label around loosely. Republicans have for years been critical about how China manages the yuan, and Monday Senator Rick Scott, Republican of Florida, said the designation should not be lifted.

“Just because we’re negotiating a trade deal doesn’t mean we should ignore Communist China’s bad acts,” Scott said on Twitter. “They are a currency manipulator. Period.”