What is Donald Trump talking about? Why Chinese economists are baffled by his latest Twitter outburst
US president’s claims of currency manipulation puzzle observers who point out there is no factual basis for the charge
Donald Trump’s latest comments about Chinese currency manipulation have bewildered many Chinese economists, who said they did not understand what the US president was trying to do.
“Russia and China are playing the currency devaluation game as the US keeps raising interest rates. Not acceptable,” Trump tweeted on Monday.
Despite the suggestion that China was devaluing its currency, the yuan has in fact been gaining on the dollar this year, largely because of the dollar’s weakness.
In the first three months this year, the yuan appreciated against the dollar by 3.7 per cent, the largest quarterly appreciation recorded, according to General Administration of Customs in China.
Russia and China are playing the Currency Devaluation game as the U.S. keeps raising interest rates. Not acceptable!
— Donald J. Trump (@realDonaldTrump) April 16, 2018
The president’s comments also run counter to a report released by the US Treasury Department last Friday.
That report fell short of listing Beijing as a currency manipulator – largely because the central bank has not intervened in the market in recent months – although China remains on the US monitoring list.
For economists who follow the yuan’s movement, the disorder from within the Trump administration only added to their confusion over US economic policy.
“I don’t get it, frankly speaking,” Zhou Hao, senior emerging market economist at Commerzbank in Singapore, said.
Trump’s tweet also broke a domestic convention that a president does not normally comment on monetary policy, which is critical to the independence of the Federal Reserve.
“The exchange rate is better decided by the market. Yet he seems to have put himself above the market. Is this a different kind of market manipulation? I don’t get it as an economist,” Xie Yaxuan, the chief economist at China Merchants Securities, said.
Since the Fed started raising interest rates at the end of 2015 the yuan has appreciated against the dollar by more than 4 per cent.
Hua Chunying, a spokeswoman for China’s Ministry of Foreign Affairs, said on Tuesday that the messages sent by the US government were confusing but it would not affect China’s currency reforms.
Hua said it reminded her of a poem that Mao Zedong wrote in 1961 – “Riotous clouds sweep past, swift and tranquil” – implying that Beijing would not be deterred by perplexing situations.
At the Boao Forum for Asia last week, China’s central bank governor Yi Gang, played down speculation that the Chinese authorities may devalue the nation’s currency if a trade war does break out between China and the US.
“Our monetary policy, as well as our exchange rate system, has been working very well,” Yi said. “Our exchange rate system is demand-and-supply determined … Basically, the central bank has not intervened for a long time and this serves the Chinese people well.”
Liao Qun, chief economist of China Citic Bank International, said that Trump’s claim was “illogical” and “unproven”.
“The fact that he is saying this at this time shows that he is not catching up with reality. He is trying to find excuses to get tough on China, but this excuse is too far-fetched,” Liao said.
But Alicia Garcia Herrero, chief economist for Asia-Pacific at the French bank Natixis, suggested that Trump may have been warning against a possible devaluation, similar to that of 2015 when China reformed its exchange rate regime – a decision which caused jitters within the currency market.