The Trump administration has officially labelled China a “currency manipulator” after the Chinese central bank allowed the renminbi to fall below a key threshold, marking a dramatic escalation in the trade war between the two economic powers.
The US Treasury announced its decision after financial markets closed on Monday. It came just hours after President Donald Trump again accused China of weakening its currency to create an unfair trade advantage.
The Treasury designation was seen by analysts as a largely symbolic move that would serve as a political justification for more tariffs.
“The US Treasury’s designation of China as a currency manipulator signals that the trade war is expanding into an all-out and open economic warfare between the two countries,” said Eswar Prasad, a Chinese financial system expert at Cornell University.
The Treasury department said China had a “long history of facilitating an undervalued currency” byintervening in the markets. “In recent days, China has taken concrete steps to devalue its currency, while maintaining substantial foreign exchange reserves despite active use of such tools in the past,” it said in a statement.
The designation came after China let the renminbi weaken to under Rmb7 to the dollar on Monday, shaking markets around the world. US stocks recorded their biggest oneday drop this year and bond yields dropped as investors worried that Us-china trade tensions hold back global growth. On Tuesday, Asian stock markets opened sharply lower.
Beijing acted after Mr Trump said on Friday the US would impose tariffs on another $300bn worth of Chinese goods next month, shattering a truce that he reached with Chinese president Xi Jinping in June. In further retaliatory measures on Monday, Beijing asked its state-owned enterprises to halt US agricultural goods purchases in retaliation to the US tariff threat.
On Tuesday, China’s Ministry of Commerce said the government was “currently not ruling out applying additional tariffs” on imports of US agricultural goods because of Mr Trump’s plan to raise tariffs on $300bn of Chinese goods. It added that the US president’s plans “seriously violated the consensus reached by the US and China” at the G20 meeting in June.
China’s potential tariffs would apply to purchases of agricultural goods made after August 3, the day after Mr Trump announced his tariff increase, it said.
Joseph Gagnon of the Peterson Institute for International Economics said the “bombshell” move should be seen as political ploy aimed at giving Mr Trump more ammunition to justify tariffs. He said China had previously resisted weakening its currency when hit with tariffs. “China has resisted doing that, which was doing us a favour. Now they’ve decided not to do us a favour any more,” said Mr Gagnon.
Mr Prasad said the designation technically triggered a process whereby the US could ask the IMF to evaluate China’s currency policies. But he said the move had political motivations, as well. “This justification provides political cover since the currency manipulation charge has long been levelled at China by Chuck Schumer, the top Senate Democrat, and other Democrats,” he said.
