Thu, Feb 21, 2019 - Page 10 News List

US presses China for stable currency

WORKAROUND:The Trump administration has said that attempts to offset the US tariffs by depreciating the yuan would be met with more or higher tariffs

Bloomberg

The US is asking China to keep the value of the yuan stable as part of trade negotiations between the world’s two largest economies, a move aimed at neutralizing any effort by Beijing to devalue its currency to counter US tariffs, people familiar with the ongoing talks said.

Officials from the two countries were discussing how to address currency policy in a memorandum of understanding, which would form the basis of a deal that ultimately would have to be approved by US President Donald Trump and Chinese President Xi Jinping (習近平), several people involved in and briefed on the discussions said.

While the precise wording remains unresolved, a pledge of yuan stability has been discussed in multiple rounds of talks in the past few months and both sides have tentatively agreed that it would be part of the framework of any final deal.

Negotiations on Tuesday resumed in Washington and are scheduled to continue through tomorrow as a Friday next week deadline for higher US tariffs approaches.

A key enforcement tool would be US tariffs. The Trump administration has been clear in its talks with Beijing that any attempt to depreciate the yuan — a strategy aimed at offsetting US duties on Chinese imports — would be met with more or higher US tariffs, said two of the people briefed on the discussions.

The standoff saw the yuan fall more than 5 percent last year, raising speculation that China was deliberately weakening its currency to offset the impact of tariffs.

The yuan has rebounded nearly 2 percent year-to-date, after sliding to a decade-low against the US dollar in late October last year.

A US request for Beijing to keep the yuan from depreciating is also potentially difficult to square with Trump and past US administrations’ calls for China to adopt market-driven reforms, and complaints that Beijing manipulates its currency to gain a trade advantage.

China’s foreign-exchange intervention has long been a political target in the US and Trump vowed to declare China a currency manipulator during his 2016 campaign.

After two years in office, the US Secretary of the Treasury Steven Mnuchin has not found grounds to do so, but has continued to monitor the yuan closely.

The US has also increasingly insisted on currency provisions in trade agreements.

The renegotiated NAFTA awaiting approval from the US Congress requires the US, Canada and Mexico not to engage in currency devaluations for competitive advantage.

A yuan deal with China is likely to be important for Trump’s domestic politics, too.

US Senate Minority Leader Chuck Schumer has been a long-standing advocate of using trade sanctions to respond to alleged Chinese currency manipulation.

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