Manufacture This

The blog of the Alliance for American Manufacturing

Washington may label Beijing a manipulator in upcoming report.

The last time the United States labeled China a currency manipulator was 1994. It looks like it might be preparing to do so again.

U.S. Treasury Secretary Steven Mnuchin, whose department is responsible for the biannual report (due out next week) that identifies currency distortions around the globe, didn’t flat out say so in an interview with the Financial Times, instead saying Treasury was “very carefully” monitoring the Chinese renminbi, which has fallen significantly during the past year.

But there has been speculation for some time that the Trump administration might take the plunge and place China on this list as part of the larger trade dispute between Washington and Beijing. And now other senior (and anonymous) Treasury officials are worrying about the trading value of the renminbi, too, before Secretary Mnuchin travels to a meeting of finance ministers in Indonesia.  

Naming China (or any other country) a currency manipulator via this report doesn’t immediately do anything. It doesn’t trigger sanctions, but it would require the administration to enter into direct talks with the country it accuses. And it would likely further chill relations between the Trump administration and Xi Jinping’s government in the context of the ongoing trade dispute.

While it’s hard to see how relations could get icier, currency manipulation is a big deal. By keeping a currency undervalued, a country can make its exports less expensive and imports more so. That has directly contributed to the yawning U.S. goods trade deficit with China in years past and has cost the United States a substantial number of jobs.

With that context in mind, codifying currency rules (or guidelines for acceptable monetary policy behavior) in trade agreements is emerging among some prominent economists as the best thing about the new NAFTA deal.

The currency chapter in the USMCA is unlikely to affect Mexico or Canada, as neither has been a currency manipulator and both run global current account deficits in any event. But it could become an important template for later deals with other countries.

“Later deals with other countries.” Like a deal with China?