Currency Manipulation Declaration's Significance for China Trade War Unknown
The Treasury Department announced that China is a currency manipulator after the Chinese yuan fell to its lowest level compared to the dollar in 11 years.
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It happened, observers say, because China decided to stop propping up the yuan, which has been under pressure because of the tariff actions of the U.S., and their effect on the Chinese economy. Stephanie Segal, a former Treasury official with responsibility for East Asia and a senior fellow at the Center for Strategic and International Studies, blogged about the development on Aug. 6. She wrote: "China’s willingness to allow the currency to depreciate was likely intended to remind the president of the downsides of escalating actions while negotiations are ongoing. If that was the idea, it didn’t have the desired effect as evidenced by the currency manipulator designation. Now that escalatory actions have been taken at the most senior levels of both governments, it’s not clear how either side stands down."
She added: "It’s hard to know how Monday’s dramatic currency developments will ultimately shape the outcome of the U.S.-China trade war, let alone broader U.S.-China strategic competition. Ironically, Trump’s move to impose additional tariffs in order to gain negotiating leverage -- which in turn prompted China to let the currency decline -- may give China the upper hand insofar as market movements put greater pressure on the United States to deescalate."
It's also hard to know if the Commerce Department will add currency to its calculations for antidumping and countervailing duty cases on Chinese imports, as it suggested it might in a proposed rule (see 1905240035).