Trump administration designates China a currency manipulator

This morning President Trump accused China of currency manipulation:

https://twitter.com/realDonaldTrump/status/1158350120649408513

This afternoon, after a significant slump in the stock market, Trump’s Treasury Department made a formal declaration that China had manipulated its currency. From CNBC:

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“Secretary Mnuchin, under the auspices of President Trump, has today determined that China is a Currency Manipulator,” the Treasury Department said in a release. “As a result of this determination, Secretary Mnuchin will engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China’s latest actions.”

The formal designation — the first since President Bill Clinton’s administration in 1994 — came after China on Monday allowed its currency to breach a psychological level.

“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,” the Treasury Department added. “The context of these actions and the implausibility of China’s market stability rationale confirm that the purpose of China’s currency devaluation is to gain unfair competitive advantage in international trade.”

The move to designate China a manipulator was encouraged this morning by Sen. Chuck Schumer:

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“China has been manipulating their currency long-before and since President Trump took office,” Schumer said in a statement. So what happens now? Not much according to Axios:

The currency manipulator designation does not come with particularly harsh remedies. First comes a year of negotiations, and after that even the Trump administration’s proposed beefed-up penalties are small, amounting to no more than about $20 million per year.

But the Washington Post reports that state media in China has gone from surprised to belligerent in a matter of days:

Trump’s latest tariff escalation, which the president announced Thursday on Twitter, sparked a rush of Chinese state media commentary suggesting that the Chinese government was caught flat-footed. State media lashed out at the United States on Sunday, accusing it of negotiating in bad faith and suggesting that Beijing may hold out from negotiating further with the Trump administration.

On Monday, propaganda authorities unveiled a new commentary series to boost popular confidence in the economy and a sense of self-reliance.

“Some people in the United States have reneged on agreements and broken the basic principles of international exchanges and conduct,” said an editorial by the People’s Daily, the Communist Party mouthpiece.It pointed out that Trump raised tariffs 27 hours after the White House released a statement calling the most recent round of talks “constructive.”

The drop in global stock prices in recent days, the commentary said, could be blamed “on the tyrannical capriciousness of certain people in America.”

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So for the short term, the lower value of Chinese currency will make the purchase of US goods less likely. But the drop is not without risks for China which is reportedly concerned that allowing its currency to drop too far would encourage its own well-off citizens to flee the country with their wealth before it loses its value.

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