China “Currency Manipulator”: U.S. Treasury Attacks

The surprise announcement by the U.S. Treasury labeling China a “currency manipulator” raises a lot of questions.

China does not currently fit the often-stated criteria for being a currency manipulator. And to the extent that the authorities have influenced the exchange-rate-setting process – and they have – it’s been to slow the weakening of the currency rather than accentuate it.

But viewing this issue in terms of a strict definition misses an important broader point. Both China and the U.S. have been weaponizing economic tools. The initial focus was on trade and foreign investment. It is now spreading to currencies.

From a U.S. government perspective, China has long sidestepped international norms regarding the protection of intellectual property and transfer of technology.

The rationale for a more aggressive approach toward China is accompanied by a timing issue: the “if not then when” hypothesis.

In its press release, the Treasury Department noted that “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.”

But the labeling could open China up to an additional series of actions from both the U.S. public and private sectors. It could also be used by the U.S. government to pressure close allies to take a more aggressive stance against what they also view as legitimate grievances against China.

Both the motivation and the likely consequences suggest that Monday’s announcement is yet another notable step in an escalation of tensions between China and the U.S. that could well get worse before it gets better.




Source: Bloomberg




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