Photographer: Tomohiro Ohsumi/Bloomberg

Trump's Campaign-Pledge Dilemma on China Currency: QuickTake Q&A


As a candidate, President Donald Trump pledged to label China a currency manipulator "on day one" of his administration. That didn’t happen, and months later, it’s not clear it will. As Trump prepares to host Chinese President Xi Jinping, Treasury Secretary Steven Mnuchin is preparing a twice-yearly review of foreign-exchange markets that will signal the administration’s views and may lay out a course of action. If the Trump administration does decide China is cheating to gain an unfair advantage in trade, it could respond in ways other than applying the currency “manipulator” label.

1. Why didn’t Trump act on his ‘day one’ pledge?

Nobody outside the White House can say for sure. It could be because according to Treasury’s most recent assessment, China isn’t a currency manipulator. A 2015 law set out three criteria for the Treasury Department to follow, including whether a partner has a disproportionate trade surplus with the U.S. and sizable purchases of foreign assets as a result of currency intervention. In Treasury’s most recent report to Congress on the policies of major trading partners, from October under the Obama administration, China was found to meet just one criterion -- holding a large bilateral trade surplus with the U.S.

2. What happens if China is labeled a currency manipulator?

Maybe nothing tangible, at least right away. The immediate effect would merely be U.S.-China negotiations. If the U.S. found insufficient progress after one year, it could bring its complaint to the International Monetary Fund. A more direct punishment -- stopping the U.S. Overseas Private Investment Corp. from financing any programs in China -- isn’t available because it’s already in effect; President George H.W. Bush enforced it in 1990, as part of package of sanctions in response to the 1989 crackdown on protesters in Tiananmen Square.

3. How often does the U.S. level this charge?

Not since 1994, when it joined the World Trade Organization and agreed to resolve trade disputes there. It called China a currency manipulator from 1992 through 1994.

4. So, is China manipulating its currency?

China’s competitors, including the U.S., have long complained that an intentionally undervalued yuan gives Chinese exporters an unfair advantage. But the past decade has seen China take steps to let the yuan’s value fluctuate against the U.S. dollar. It became one of the International Monetary Fund’s five designated reserve currencies last year -- a reflection that China was starting to play the “economic game by the rules,” as IMF Managing Director Christine Lagarde put it. The U.S. stopped calling the currency “significantly undervalued.” If anything, China is working to prop up, not weaken, its currency these days. All of this might be why the Trump team has softened its rhetoric.

5. Why does this matter to Trump?

A central part of his successful campaign was blaming China for stealing American jobs, intellectual property and capital. In addition to promising to call out China as a currency manipulator, he pledged to bring cases against China for “unfair subsidy behavior” and use “every lawful presidential power to remedy trade disputes,” including the application of tariffs. He once broached a tax of 45 percent on imports from China, then denied bringing it up.

6. What else could he do?

The Trump administration is said to be reviewing other ways to penalize countries that are seen as keeping their currencies undervalued. One possible avenue, according to CNBC, is blocking future federal contracts with those countries and choking off government financing for U.S. businesses seeking to invest there, powers made available to the president under the Trade Facilitation and Trade Enforcement Act of 2015.

The Reference Shelf

— With assistance by Enda Curran, and Saleha Mohsin

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