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Treasury Faces Reckoning on China and Currency Manipulation

The US trade deficit soared in August, specifically due to a widening trade gap with China. This has been the trajectory for close to the last decade, but it’s only getting worse. If it were a matter of China merely developing a more hospitable business environment, making more intelligent investments and just out-competing the United States, that would be one thing. But that’s not really the case. You can attribute far more of this to artificial currency manipulation on the part of the Chinese, keeping their export prices low. They’ve purchased $200 billion in foreign currency just in the past two months, for just this purpose.

The US has the opportunity today to label China a currency manipulator in a Treasury Department report, a move that would have certain implications (though it’s unclear what it would trigger). Treasury hasn’t determined whether they’ll release the report, which is mandated by law, on today’s statutory deadline. I don’t think the Chinese expect Treasury to out them as a currency manipulator, but just in case, they’re offering warnings.

The US should not use the weak yuan as a “scapegoat” for its own economic problems, a Chinese government spokesman has said.

At a regular briefing, commerce ministry spokesman Yao Jian said China would continue to reform its currency policy, but at its own pace.

Later the US government is expected to release a report which could officially brand China a “currency manipulator”.

The last time Treasury offered a currency report, which is required twice a year, they delayed it for three months and then declined to label China a currency manipulator. The designation would be the first since the Clinton Administration in 1994.

The House already passed legislation that would enable the Commerce Department to impose duties on goods that come from currency manipulating countries, with China clearly the intended target. Max Baucus said in Beijing the other day that the Senate was “poised” to do the same. The Administration may want to take their own action to stave off the legislation.

Since China decided to unpeg the renminbi to the dollar earlier this summer, the value of the currency has risen less than 2.5%.

UPDATE: The Administration delayed the report until mid-November. They did take action on Chinese greentech policies, however, which I covered here.

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David Dayen

David Dayen