For First Time in 25 Years, Treasury Cites China for ‘Currency Manipulation’

By Patrick Goodenough | August 6, 2019 | 4:18 AM EDT

An employee counts Chinese banknotes at a bank in China’s Jiangsu province. (Photo by AFP/Getty Images)

(CNSNews.com) – The U.S. Treasury, taking the first such action in 25 years, has labeled China a “currency manipulator,” with Treasury Secretary Steven Mnuchin on Monday accusing Beijing’s central bank of devaluing the renminbi (RMB) “to gain unfair competitive advantage in international trade.”

The move came shortly after President Trump, a longstanding critic of China’s currency and trade practices, said on Twitter the Chinese had dropped the value of the RMB “to an almost a historic low.”

“China has always used currency manipulation to steal our businesses and factories, hurt our jobs, depress our workers’ wages and harm our farmers’ prices,” Trump tweeted. “Not anymore!”

The Treasury Department said in a statement that “China has a long history of facilitating an undervalued currency through protracted, large-scale intervention in the foreign exchange market.”

“In recent days, China has taken concrete steps to devalue its currency, while maintaining substantial foreign exchange reserves despite active use of such tools in the past,” it added.

As a result of the determination, Mnuchin will ask the International Monetary Fund (IMF) “to eliminate the unfair competitive advantage created by China’s latest actions.”

Since 1988 the Treasury Department has reported to Congress every six months on the foreign exchange practices of America’s major trading partners, and whether any are manipulating the exchange rates between their currencies and the U.S. dollar to make their goods cheaper on the global market.

Over that period, only three countries have been cited as manipulators.

They were South Korea in 1988, Taiwan in 1988 and again in 1992, and China between 1992 and 1994. All three citations were removed, South Korea and Taiwan after two six-month reporting periods, and China after five reporting periods.

According to a 2005 Government Accountability Office report, the three citations were removed after negotiations resulted in the three countries making “substantial reforms to their foreign exchange regimes.”

“In addition, their currencies appreciated and external trade balances declined significantly until they reached the point at which the three were removed from the list of currency manipulators,” it said.

‘As soon as I got elected, they stopped’

When running for the White House, Trump pledged to label China a currency manipulator as soon as he took office, but did not do so.

Three months after his inauguration – and weeks after meeting with Chinese President Xi Jinping at Mar-a-Largo – the president told CBS’ “Face the Nation” he had not taken the step against the Chinese because, “as soon as I got elected, they stopped.”

“And I would say that I was the one that got them to stop,” he added.

The Omnibus Foreign Trade and Competitiveness Act was signed into law by President Reagan in August 1988. (Photo: CNSNews/govtrack.us)

Trump also suggested in that interview that he could hardly have sought Xi’s help to rein in North Korea while labeling him a currency manipulator.

“Somebody said, ‘Oh, you didn't call him a currency manipulator,’” he said. “I believe that President Xi is working to try and resolve a very big problem for China also. And that’s North Korea. Can you imagine if I say, ‘Hey, by the way, how are you doing with North Korea? Also, we’re going to announce that you're a currency manipulator tomorrow.’”

As referred to by Trump on his Twitter feed, China on Monday allowed the RMB to fall below the seven-per-dollar level for the first time since May 2008.

The People’s Bank of China attributed the depreciation to “the effects of unilateralist and trade-protectionist measures and the expectations for tariffs against China.”

Trump earlier threatened to impose a 10 percent tariff from September 1 on $300 billion of Chinese goods not currently subject to tariffs, as a long-running trade war between the world’s two largest economies continues.

Under U.S. law the Treasury Department uses three criteria to apply the designation: persistent intervention in a currency market, having a large trade surplus with the U.S., and having large global current-account surplus.

Neither President George W. Bush nor President Obama labeled China a currency manipulator.

The Bush administration declined to do so despite bipartisan congressional calls, and during the 2008 election campaign Democratic candidate Obama said the decision by the Bush Treasury Department not to do so raised “serious questions about the administration’s commitment to protecting the interests of American businesses and American workers.”

Days before the election, Obama wrote in a letter to the National Council of Textile Organizations that China’s large trade surplus with the U.S. was “directly related to its manipulation of its currency’s value.” He pledged as president to “use all diplomatic means at my disposal to induce China to make these changes” to its foreign exchange policy.

Obama did not label China a currency manipulator, however, although when running for re-election in 2012 he took credit for the fact China had allowed a gradual appreciation of the value of the RMB since mid-2010.

“The currency has actually gone up 11 percent since I’ve been president because we have pushed them hard,” he said during an Oct. 2012 election debate. His GOP opponent, Mitt Romney, pledged during that campaign to label China a currency manipulator on his first day in office.

 

Patrick Goodenough
Patrick Goodenough
Spencer Journalism Fellow

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