Trump’s Treasury Department has now designated China as a currency manipulator, the first time this has been done in 25 years.
AXIOS – U.S. Treasury Secretary Steven Mnuchin on Monday night declared China to be a currency manipulator, just hours after the Chinese government allowed the yuan to slip below a 7-to-1 dollar ratio for the first time in over a decade.
Why it matters: This is a further ratcheting up of trade tensions between the two countries, and also marks the first time any U.S. president has used the currency manipulator label since 1994.
How it works: Under a 2015 law, in order to be a currency manipulator, a country needs to spend 2% of GDP on currency manipulation over a 12-month period. China is not doing this. If anything, China was keeping the yuan artificially strong until Trump ratcheted up the trade war on Thursday.
Why now: Trump campaigned on labeling China a currency manipulator, but was persuaded not to on the grounds that it would not be helpful. Today, however, voices from both the right (Lou Dobbs) and left (Chuck Schumer) have been urging the president to take this step.
What’s next: The currency manipulator designation does not come with particularly harsh remedies. First comes a year of negotiations, and after that even the Trump administration’s proposed beefed-up penalties are small, amounting to no more than about $20 million per year. The move will certainly annoy the Chinese, however, and make any trade deal harder to achieve.
The Treasury Department press release notes that “As a result of this determination, Secretary Mnuchin will engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China’s latest actions.”
How much impact this can or will have, I do not know. But it is clear that things continue to ratchet up as this trade war continues.
Charlie Gasparino from Fox Business suggests that most of Trump’s economic advisors, including Mnuchin and Kudlow, were against the new round of tariffs that Trump announced last week. But one advisor was for it, Peter Navarro: