The US on Monday removed the currency manipulator label that it imposed on China last summer, in a sign of easing tensions between the two economic powers after nearly two years of conflict.
Just two days before US President Donald Trump is set to sign a “phase one” trade agreement with China, the US Department of the Treasury in its semi-annual report to the US Congress said that the Chinese yuan has strengthened and that Beijing is no longer considered a currency manipulator.
Although the US Treasury refrained from slapping the label on China in its report in May last year, Trump in August accused Beijing of weakening its currency “to steal our [US] business and factories,” restating a longstanding grievance.
Chinese authorities in August allowed the yuan to fall below 7 to the US dollar, sending shudders through stock markets at the time and stoking Trump’s ire.
“Over the summer, China took concrete steps to devalue its currency,” also known as the renminbi (RMB), and those moves “left the RMB at its weakest level against the dollar in over 11 years,” the US Treasury said.
However, more recently the yuan strengthened to 6.93 to the US dollar.
The US Treasury said that the new trade pact addresses currency issues.
“In this agreement, China has made enforceable commitments to refrain from competitive devaluation and not target its exchange rate for competitive purposes,” US Secretary of the Treasury Steven Mnuchin said in a statement.
However, that commitment is identical to the one that Beijing has long made as part of the G20.
Although the semi-annual currency report always gains attention as a key sign of relations between the powers, the currency manipulator designation was largely symbolic.
The label called for the US Treasury to work with the IMF to “eliminate the unfair competitive advantage” created by China’s alleged actions and to consult with Beijing about the matter.
As part of the trade deal, “China has also agreed to publish relevant information related to exchange rates and external balances,” Mnuchin said.
However, many economists questioned the decision to label China a manipulator in the first place.
“China shouldn’t have been designated to start with. Small current account surplus/GDP; scant intervention,” Mark Sobel, a former US executive director at the IMF and a longtime former US Treasury official, said on Twitter.
While he acknowledged the large trade surplus, he said that “economists disregard those.”
“RMB fell in response to Trump’s tariffs. Designation was blatant/errant political act,” Sobel tweeted.
The announcement was getting “way more attention than it should, because it matters only on the most superficial symbolic level,” Peterson Institute for International Economics research fellow Martin Chorzempa said.
The phase one deal is significant and “will lead to greater economic growth and opportunity for American workers and businesses,” Mnuchin said.
However, Beijing still needs to take steps “to stimulate domestic demand and reduce the Chinese economy’s reliance on investment and exports,” the US Treasury said.
Chinese Vice Premier Liu He (劉鶴), the top Chinese trade envoy, arrived in Washington on Monday ahead of today’s expected signing of the agreement.
After multiple rounds of tariffs, the US trade deficit in goods through November last year was running at more than US$320 billion, which is about US$62 billion below the same period in 2018.
“Treasury remains disturbed by the persistent and excessive trade, and current account imbalances that mark the global economy,” the report said.
The US Trade Representative’s Office over the weekend announced that as part of the initial trade deal, the US and Chinese governments would hold “at least bi-annual” meetings.
This was something that previous administrations did for years, but that Trump scrapped in favor of a more aggressive approach.
Mnuchin and US Federal Reserve Chairman Jerome Powell would conduct macroeconomic meetings with top Chinese officials “on a regular basis,” the office said.
The currency report had eight other countries on the “monitoring list” due to concerns about their currency practices: Germany, Ireland, Italy, Japan, South Korea, Malaysia, Singapore, Switzerland and Vietnam.
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