The US already has a trade war with China on its hands. Recent signals from the Trump administration suggest it may be gearing up to accuse China of currency manipulation, too.
Last week, Treasury secretary Steve Mnuchin said that he had “expressed concern” to China about the yuan’s sharp slide against the dollar. The Chinese currency has lost 10% against the greenback since late March.
“As we look at trade issues, there is no question that we want to make sure China is not doing competitive devaluations,” Mnuchin said on the sidelines of the IMF, World Bank, and G20 meetings in Bali.
The period covered by the report will look at the first half of 2018. During this time, despite Mnuchin’s insinuations, China did not weaken its currency in a meaningful way—and certainly not in a way that harmed the US. It’s vital that the Treasury’s report say so.
In the past, currency manipulation helped deal a lasting blow to the American economy—especially manufacturing, which had to compete more than other sectors against Chinese goods.
In the first half of 2018, China ran a goods trade surplus of around $185 billion with the US. However, it met neither of the other two criteria from the 2015 Trade Act.
There’s less certainty over whether the Treasury could invoke the wider-ranging criteria of the 1988 law to accuse China of manipulation, as FT Alphaville recently highlighted. Because China is huge, so is the absolute value of its bilateral trade surplus with the US. However, it ran a current account deficit in the first quarter of 2018, according to the OECD.
However, since Trump took office, the departments’ reports have discussed the 1988 thresholds in much more detail.
Certainly, China did that with abandon throughout much of the 2000s—and the US should have done more about it at the time.
But if the Trump administration wants to encourage countries to stop unfairly cheapening their currencies, it must build credibility by sticking to its own standards. And by those, China’s conscience—at least in the first half of 2018—is clear.