A Currency Deal with China?


While running for president in 2016, Donald Trump pledged that “on day one of a Trump Administration the US Treasury Department will designate China a currency manipulator.” As recently as August 2018, the president tweeted that China’s practices were hurting US interests: “I think China’s manipulating their currency, absolutely.” It is thus highly ironic (to put it mildly) that he may now be asking China to manipulate its exchange rate to help the United States.

Where you stand depends on where you sit. As with the North American Free Trade Agreement (NAFTA), Trump wants to trash his predecessors in the Obama and Bush administrations while defending his own position when the two are in fact largely indistinguishable. The United States has long wanted China to stop buying dollars to keep the Chinese currency, the renminbi (RMB), from strengthening—as China did massively during 2003–13 but has not done since. According to press reports, China may now “pledge to keep the RMB steady.” The logical inference is that, under pressure from Washington, it would buy its own currency and sell dollars to keep the RMB from falling even if market forces pushed it down. (Brad Setser of the Council on Foreign Relations, a former Treasury Department economist, notes that “I don’t see how you can credibly try to bring the bilateral deficit down if China doesn’t make a commitment to resist further depreciation.)

Newsletter sign up

The difference would be in the direction of the manipulation, with China selling dollars rather than simply not buying them. But the goal is the same: to hurt China’s competitive position because a stronger RMB raises the prices of Chinese exports and lowers the prices of its imports. Anything less would hardly justify Secretary of the Treasury Steven Mnuchin’s claim that this would be “one of the strongest agreements ever on currency.”

Read More

Are you enjoying the article? Join our community for even more!


Click Here

Related posts

Britain’s Place in the Global Trading System


Why Big Businesses Move Headquarters Around The World – Tax, Talent And Trepidation

Camila Coutinho

What is globalization?

Camila Coutinho

Leave a Comment