US demands China keeps yuan stable over fears of trade war backlash, sources say ahead of Washington talks
- Negotiations resume on Tuesday and are expected to continue until Friday as the March 1 trade war truce deadline for higher US tariffs approaches
- China’s foreign exchange intervention has long been a political target in the US and Donald Trump vowed to declare China a currency manipulator in 2016
The United States is asking China to keep the value of the yuan stable as part of trade negotiations between the world’s two largest economies, a move aimed at neutralising any effort by Beijing to devalue its currency to counter American tariffs, people familiar with the ongoing talks said.
Officials from the two countries are discussing how to address currency policy in a memorandum of understanding that would form the basis of a deal that ultimately will have to be approved by US President Donald Trump and his Chinese counterpart Xi Jinping, according to several people involved in and briefed on the discussions.
While the precise wording remains unresolved, a pledge of yuan stability has been discussed in multiple rounds of talks in recent months and both sides have tentatively agreed it will be part of the framework of any final deal.
Negotiations resume on Tuesday in Washington and are expected to continue until Friday as the March 1 deadline for higher US tariffs approaches.
A spokesman for the US Trade Representative’s office, which is leading talks for the White House, did not immediately respond to a request for comment.
The Bloomberg Dollar Index fell to 0.3 per cent to a session low following the report, and the offshore yuan rose to an intraday high of 6.75 per dollar.
The Australian dollar – whose economy is closely linked to China’s – climbed 0.6 per cent against the US dollar.
A key enforcement tool would be US tariffs and the Trump administration has been clear in its talks with Beijing that any attempt to depreciate the yuan – a strategy aimed at offsetting existing US duties on Chinese imports – would be met with more or higher American tariffs, according to two of the people briefed on the discussions.
The bilateral stand-off saw the yuan fall over 5 per cent in 2018, raising speculation that China was deliberately weakening its currency to offset the impact of tariffs.
The yuan has rebounded nearly 2 per cent year-to-date, after sliding to a decade-low against the dollar in late October.
A US request for Beijing to keep the yuan from depreciating is also potentially difficult to square with Trump and past US administrations’ calls for China to adopt more market-driven reforms and complaints that Beijing manipulates its currency to gain a trade advantage.
China’s foreign exchange intervention has long been a political target in the US and Trump vowed to declare China a currency manipulator during his 2016 campaign.
After two years in office, US Treasury Secretary Steven Mnuchin has not found grounds to do so but has continued to monitor the yuan closely.
The US has also increasingly insisted on currency provisions in trade agreements. The renegotiated North American Free Trade Agreement now awaiting approval from Congress requires the US, Canada and Mexico not to engage in currency devaluations for competitive advantage.
The Obama administration persuaded Japan and other counties to make a similar pledge as part of its negotiations for the Trans-Pacific Partnership.
A yuan deal with China is likely to be important for Trump’s domestic politics, too.
Senate Minority Leader Chuck Schumer has been a long-standing advocate of using trade sanctions to respond to alleged Chinese currency manipulation.