US president-elect Donald Trump was not the first US presidential candidate to blast China for manipulating its currency for trade advantage since the century began, but it is increasingly likely he will be the first to follow through on the threat once in office.
That is the perspective of economists at Bank of America Merrill Lynch led by Helen Qiao (喬虹), chief Greater China economist at the bank in Hong Kong, whose views have evolved in recent weeks given the sustained protectionist rhetoric coming from the incoming president.
“It has been increasingly difficult to dismiss concerns that president-elect Trump will adopt protectionist trade policies that may hurt trading partners as well as the US itself,” Qiao and her colleagues wrote in a note last week.
While designating China an official manipulator of its exchange rate for the first time since 1994 poses some technical hurdles, not least because the agency in charge of the process is the US Department of the Treasury, not the White House — it may be a more appealing option than some of the alternatives. Trump once broached the idea of a 45 percent tariff on imports from the largest Asian economy, something the US president has the power to do though could trigger a US-China trade war.
China has made clear that it is ready to rumble if Trump takes punitive measures on Chinese products and has reportedly prepared retaliatory options ranging from antitrust action against American businesses to cutting government procurement from US firms. The treasury’s manipulator label, by contrast, does not necessarily mean any material punishment for Chinese exports to the US.
The labeling in the semiannual treasury foreign-exchange report — due in April and October every year — would involve tweaking the rules defined during US President Barack Obama’s tenure. The latest release showed China meeting just one of the three conditions, with its bilateral trade surplus a large multiple of the minimum US$20 billion trigger; its current-account surplus and official foreign-exchange purchases were too small to qualify.
Even so, “since they are not legally binding, it is not impossible that the future US president would ask his secretary of the treasury to revise the criteria, or use his discretion to label China as a manipulator anyway,” the Bank of America Merrill Lynch analysts wrote.
That is despite the fact that China has been intervening to support the yuan against the US dollar, not drive it down.
The attraction of the manipulator label — however patchily conceived — could be, on the one hand, to deliver something to Trump voters. On the other, it could give China a prod to engage in bilateral talks to address a bilateral US trade deficit that measured US$319 billion last year through to November.
“The main point of naming China as a currency manipulator would be to bring China back to the negotiation table at the lowest cost,” Qiao and her team wrote.
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