The United States on Monday officially designated China a currency manipulator for the first time since 1994 after Beijing let the yuan weaken below 7 per dollar to its lowest in 11 years. Giving China the label was an election campaign promise of President Donald Trump.
The Treasury Department of the United States describes a country as a currency manipulator when it deliberately influences the exchange rate of its currency to gain unfair advantage in trade. When a country lets its currency weaken, it makes its goods and services become cheaper, and hence more competitive, in the international market.
Treasury Secretary Steven Mnuchin said on Monday that the US had determined that China was manipulating the yuan and that Washington would engage with the International Monetary Fund to eliminate unfair competition from Beijing.
The two countries have already been engaged in a tariff war for over a year. Trump has pledged to impose 10% tariffs on $300 billion of Chinese imports from September 1 in the latest in a series of such actions.
After the United States’ decision, China’s official newspaper People’s Daily said on Tuesday that Washington was “deliberately destroying international order”.
The People’s Bank of China had on Monday attributed the decline in the yuan’s exchange rate to “unilateralism and trade protectionism measures and the imposition of tariff increases on China”. Mnuchin’s statement said that this made it clear that China exercised ample control over the exchange rate.
“This is an open acknowledgement by the PBOC that it has extensive experience manipulating its currency and remains prepared to do so on an ongoing basis,” the Treasury Department’s statement said.
After the US labels a country as a manipulator, the Treasury is required to demand special talks to correct the exchange rate, through penalties such as excluding the country from US government procurement contracts, according to Reuters.
In May, the United States had removed India from its currency monitoring watch list, which names countries that have potentially questionable foreign exchange policies and are suspected to be manipulating their currencies to gain trade advantages over the US. The treasury department had not removed China from the list, but had stopped short of giving it the currency manipulator label.