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Macroscope | Trump finally labels China a currency manipulator. It may be too little, too late
- The next step – negotiation – is unlikely to facilitate a resolution to the year-long trade spat. And when the talks do fail, none of the steps the US is mandated to take will put any meaningful pressure on Beijing
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As a candidate for the 2016 US presidential election, Donald Trump vowed to name China as a currency manipulator “on day one” as president. On August 5 this year, he finally made the move, but hardly with the triumph of fulfilling a campaign promise.
The immediate context of Treasury Secretary Steven Mnuchin’s declaring China a “currency manipulator” is that the renminbi fell below the psychologically important level of 7 yuan to the US dollar, which of course happened on the heels of Trump’s announcement of an additional 10 per cent tariff on US$300 billion worth of Chinese imports, starting on September 1.
One does not need a degree in economics to understand the interconnection between exchange rates and tariffs.
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If a Chinese factory sells Halloween costumes to Walmart, a tariff increase of 10 per cent by US customs will be fully offset by a 10 per cent depreciation of the renminbi.
Even if WTO jurisprudence would allow a complaint to be filed, the current US administration – which has been bent on blatantly disregarding WTO rules on tariffs – would be hugely embarrassed to appear as a victim.
There may be other reasons for the latest change of the renminbi exchange rate, but the impact of offsetting the US tariff increase is hard to deny.
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