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A new Currency war confronting United States vs China

  • The Trump administration labels China a currency manipulator.
  • The complaint is more than a bit muddled.
  • Much lower production costs and a devalued currency gives China a huge advantage vs the United States with a trade balance 400% on China's favor.  

August 6.– On August 5th the Trump administration deployed another weapon in its fight with China: name-calling. After some grousing on President Donald Trump’s twitter feed, the Treasury officially designated China a currency manipulator.

The Chinese government stands accused of devaluing its currency in order to gain an unfair advantage in international trade. It is the first time the Treasury has made such an accusation in over 25 years.

What motivated the Trump administration’s claim was that the Chinese yuan has been falling in value against the dollar, and on August 5th dropped past the psychologically significant value of seven to the dollar for the first time in over a decade. The People’s Bank of China (PBOC) also tends to keep a close eye on its value, intervening on occasion to lean against the wind of market pressure.

In the medium-term, the name-calling may not lead to much. For American law is tougher in identifying currency manipulators than in punishing them. The law says that Mr Trump could direct the federal government to stop buying stuff from China, or he could refuse to do a trade deal with them. The formal announcement said that the administration would engage with the IMF “to eliminate the unfair competitive advantage created by China’s latest actions”. None of this will leave China quaking in its boots ...

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