WASHINGTON (AP) — In the latest chapter of an escalating trade war with China, President Donald Trump is again accusing China of manipulating its currency to gain trade advantages. In doing so, he’s misrepresenting the facts.
Trump has been making a charge of currency manipulation since the 2016 presidential campaign, even promising to take action against China right after taking office.
His administration took it to the next level Monday, formally labeling China a currency manipulator after China allowed its currency, the yuan, to fall below the seven yuan-to-$1 level for the first time in 11 years. It was also the first time the Treasury Department put China on the currency blacklist since 1994. The designation could pave the way for more U.S. sanctions against China.
Trump’s latest complaint in tweets earlier Monday came after the dramatic drop in the yuan.
TRUMP: “China dropped the price of their currency to an almost a historic low. It’s called ‘currency manipulation.’ Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!”
THE FACTS: Trump is correct to be worried that China may decide to use its currency as a weapon in its ongoing trade war with the United States. But it is Trump’s own Treasury Department which had failed to cite China as a currency manipulator in five reports it had issued since Trump took office in January 2017. Treasury’s move on Monday came in a press release as opposed to a regular currency report issued every six months.
A weaker yuan would make Chinese goods less expensive in the United States, potentially offsetting some of the impact of the tariffs Trump has already imposed on $250 billion in Chinese goods and is threatening to widen to another $300 billion in goods next month. Those U.S. tariffs drive up the cost of Chinese imports to American consumers.
Trump seems to blame the Federal Reserve for not taking action against China in the currency area. In reality, the Treasury’s previous reports had repeatedly said that China did not meet the requirements established in U.S. law to be branded a currency manipulator. In its surprise announcement late Monday finally labeling China a currency manipulator, the Treasury Department called China’s explanations of its recent currency moves implausible and contended that the real purpose of “China’s currency devaluation is to gain unfair competitive advantage in international trade.”
Trump’s mention of the Federal Reserve could also be an effort to pressure the central bank to lower its benchmark interest rate further. It cut the rate for the first time in more than a decade last week, and many analysts believe it will cut rates again in September to keep the fallout from a trade war from derailing the U.S. economy.
Falling U.S. interest rates can put downward pressure on the dollar’s value against other currencies. A weaker dollar could boost U.S. export sales.