Currency war
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US Treasury Secretary Steven Mnuchin at the White House. The Treasury Department’s labelling of China as a currency manipulator for the first time since 1994 marked a significant escalation in the trade war and roiled global markets. Photo: Xinhua

China hits back at ‘currency manipulator’ label as Donald Trump ratchets up US trade war

  • The People’s Bank of China called the United States’ move to label China a currency manipulator ‘wilful unilateral and protectionist behaviour’
  • Markets slid on the potential further escalation in US-China tensions, with analysts predicting more tariffs to come
Currency war

China on Tuesday rejected the charge by the United States that it is manipulating its currency, and moved to contain the yuan’s slide in the foreign exchange market.

The Chinese currency slumped by more than 2.5 per cent over the past three days, weakening beyond the symbolic 7 yuan to the US dollar for the first time since 2009 on Monday.
This led the US Treasury Department to label China a currency manipulator, a move which could lay the ground for higher trade war tariffs and sanctions, analysts said.
The People’s Bank of China (PBOC) hit back at Washington’s move, arguing that “there is no such thing as currency manipulation [on the part of China]”. The central bank called the designation “wilful unilateral and protectionist behaviour”.

It added that the US move has “undermined global multilateral consensus on exchange rate issues” and will “generate serious negative impact on the stable operation of the international monetary system”.

The PBOC set a stronger-than-expected daily central parity price for the yuan exchange rate on Tuesday, signalling that it does not want to see the currency slide too dramatically. It also announced the sale of 30 billion yuan (US$4.3 billion) worth of yuan bills in Hong Kong next week, a move that could see offshore liquidity used to prop up the currency.

Washington’s labelling of China as a currency manipulator for the first time since 1994 marked a significant escalation in the trade war and roiled global markets.


The Shanghai Composite Index fell 1.6 per cent to its lowest close since February, while the Hang Seng Index closed at its lowest point since January. The Nikkei – a stock market index for the Tokyo Stock Exchange – briefly hit a seven-month low on Tuesday.

In the US, meanwhile, the Dow Jones Industrial Average plunged nearly 3 per cent on Monday, while the S&P 500 and Nasdaq Composite lost 3 per cent, as well. Meanwhile, the price of gold hit all-time highs against sterling and yuan.

The most dangerous financial moment since the 2009 financial crisis with current developments between the US and China
Larry Summers

Larry Summers, a former US treasury secretary, wrote in a tweet that the world was at “the most dangerous financial moment since the 2009 financial crisis with current developments between the US and China”.

The currency war has come as prospects for a US-China trade deal continue to fade. Last Friday, US President Donald Trump threatened to place a new 10 per cent tariff on US$300 billion worth of Chinese products from September 1.

Trump blamed China for not buying enough US agricultural goods and for failing to stop the flow of fentanyl, an addictive opioid, into America.

China says ‘no such thing’ as currency manipulation despite US claim

This broke the truce reached by Trump and President Xi Jinping at their Osaka summit in June. China has responded by suspending purchases of US farm products.


Analysts suspect that the US’ designation of China as a currency manipulator will lead to a further escalation in trade war tariffs.

According to the US law, there is no direct provision linking currency manipulation with the imposition of tariffs.


However, under section 701 (c) of the Trade and Facilitation Enforcement Act of 2015, Trump may bypass traditional courses of action, where it is judged that currency manipulation has “an adverse impact on the United States economy greater than the benefits of taking remedial action”, or where it “would cause serious harm to the national security of the United States”.

More conventional courses of action, according to the law, include a ban on US government procurement from China, a request for “rigorous surveillance” of China’s exchange rate and macroeconomic policies by the International Monetary Fund, as well as a reassessment of whether the US should even be involved in trade negotiations with Beijing.


“The manipulation label provides political cover for the imposition of more tariffs, whether or not the administration creates the legal fig leaf of a rule making currency manipulation grounds for anti-dumping duties, as the Department of Commerce proposed in May,” said Arthur Kroeber, founder and head of research at Gavekal Dragonomics.

US labelling China currency manipulator ‘absurd’ and threatens recession

Shen Jianguang, chief economist at JD Digit and a veteran Chinese economy watcher, said the timing is not good for Beijing to allow the yuan to slide below seven, and that a currency war would not favour China.


“It is not in China’s interest to escalate the trade war into currency or financial fields,” Shen said. “The countermeasures available for Beijing are quite limited.”

This article appeared in the South China Morning Post print edition as: China says it is not using yuan as weapon