Washington – In a move that is that will certainly escalate the ongoing trade war between the US and China, the U.S. Treasury has designated China as a currency manipulator. This was done after the Chinese central bank let the yuan depreciate and it fell to a value of 7.1087 against the dollar in Hong Kong, a highest single day fall since August 2015. In mainland China, the yuan fell beyond that with exchange rates around 7.03 per dollar, for the first time since 2008.
China’s central Bank said that the depreciation was “due to the effects of unilateralist and trade-protectionist measures and the expectations for tariffs against China.” Beijing also added that the Chinese companies will stop purchasing US agricultural products and the government may impose tariffs on US farm goods. This is being considered as a retaliatory move to the previous declaration made by Trump about imposing 10% tariffs on the remaining $300 billion of Chinese imports from Sept. 1.
In response to China’s move, Donald Trump stated in tweeter that “China has always used currency manipulation to steal our businesses and factories, hurt our jobs, depress our workers’ wages and harm our farmers’ prices. Not anymore!”
Treasury Secretary Steven Mnuchin made the formal announcement, labelling China as a “currency manipulator.” The department also said that Mnuchin “will engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China’s latest actions.” This move is contrary to the stand taken by the treasury in last May when it declined to sanction China for currency manipulation practices.
Trump’s tough attitude towards China have send ripples down the economic community and the stock markets were sent plunging down. While some supports the president and think that China will negotiate, many others feel that the move will backfire. Cornell University economist Eswar Prasad who was also the former head of the China division at the International Monetary Fund, stated that,” “This is an extraordinary action of hostility against a major trading partner, with little economic basis and again driven mostly by presidential whims.”
This is the first time that the US has economically labelled a country since the 1990s. It may be noted that Trump had promised to declare China a manipulator in his presidential campaign, back in 2016. Mnuchin and US Trade Representative Robert Lighthizer, also returned from Shanghai last week after meeting their Chinese counterparts. The meetings failed to find any solution for resolving the American complaints about Chinese economic practices.
In the light of the ongoing events, president Trump has called a meeting of his top economic aides while ruling out any currency intervention in the markets.