“Unfair advantage”: what does the recognition of China's status as a currency manipulator by the United States mean

The US Treasury has officially declared China a currency manipulator. This is stated in a press release published on the ministry’s website. The Ministry of Finance explained this decision by the measures of the PRC authorities to depreciate its own currency.

The yuan rate at auction on Monday, August 5, lost more than 1% and fell to its lowest value since February 2008. For the first time in more than 11 years, China’s currency reached the psychologically important level of 7 yuan per US dollar for the financial market.

Donald Trump called the weakening of the renminbi a serious violation and currency manipulation of China. The President of the United States wrote about this on Twitter.

The US Treasury believes that the probable goal of depreciating the Chinese national currency is to obtain "an unfair competitive advantage in foreign trade."

The deputy director of the Phoenix Trading and Investment Institute, Alexander Egorov, noted that China will indeed gain a competitive advantage due to the weakening of the national currency. Nevertheless, the depreciation of the renminbi in recent days can be explained by Beijing’s response to the introduction of new duties by the United States and the natural reaction of the foreign exchange market.

“The People’s Bank of China really allowed itself the possibility of weakening the national currency. In China, capital flows are tightly controlled, and the regulator could well contain the depreciation of the renminbi. However, this step is disadvantageous for Beijing both in terms of trade and the market situation. After all, the movement of the foreign exchange market to a cheaper yuan after the new US trade duties is quite natural, ”Yegorov explained in a conversation with RT.

Alexander Egorov emphasized that the actions of the PRC could well be called the protective measures that Beijing itself forced the United States to take. However, the US Treasury preferred the term "currency manipulator."

The Central Bank of China, in turn, has denied allegations of US currency manipulation. This is stated in the statement of the department of August 6.

“China regrets that the US Treasury Department classifies China as a currency manipulator. This stigma completely does not meet the criteria set by the US Treasury for countries engaged in manipulating the exchange rate, ”the central bank statement quoted TASS as saying.

The last time the US Treasury appropriated the status of a currency manipulator in 1994 - and also to China. Prior to this, similar accusations were made in 1988 against Taiwan and South Korea, when the ministry only started to track possible manipulations with exchange rates among US trading partners.

Without damage

Experts interviewed by RT believe that the recognition by China of the status of a "currency manipulator" on the part of the United States will not affect the economic situation in China.

“The inclusion of China in the US list of currency manipulators does not have any legal consequences, usually only the country's reputation suffers. However, when it comes to blacklisting the world's second largest economy, a natural competitor to the United States, the charges are nothing more than a formality, ”said Andrei Khokhrin, CEO of Oriole Capital, in a conversation with RT.

US accusations will not affect China’s trade relations with other countries, the director of the LOCO-Invest analytical department, Kirill Tremasov, is sure. The expert suggested that none of the states of the world is interested in the deterioration of trade relations with China, so no one will join the war of duties between Washington and Beijing.

Meanwhile, the head of the US Treasury, Stephen Mnuchin, intends to turn to the International Monetary Fund to help eliminate the trade advantages of China, created by weakening the renminbi.

Another possible step if the country is recognized as a currency manipulator could be the exclusion of the so-called offender from US government contracts, reports Reuters.

Kirill Tremasov believes that the IMF will not interfere in the trade conflict of the two states, in addition, the fund does not have the necessary ways to influence China.

“The IMF has leverage only on those countries that it lends. For example, the fund has a loan program for Argentina, which it may dictate certain conditions. With regard to China, there are no leverage. The IMF may issue some kind of recommendation for Beijing, but nothing more, ”Tremasov explained.

The analyst also noted that securing the status of a currency manipulator for China is an additional tool of pressure on Beijing from Washington, which may be followed by a number of measures on the American side, but they are unlikely to be serious.

Experts do not exclude that the decision of the US Treasury can most likely affect future trade negotiations between the United States and China. The next round is scheduled for September this year, but analysts doubt that after Washington’s actions, the parties can quickly come to an agreement.

Kirill Tremasov believes that Beijing and Washington will not be able to agree either at the next meeting or at subsequent ones. As a result, the resolution of the trade conflict will be postponed to 2020. Meanwhile, the expert recalled that due to the prolonged tariff confrontation between the two countries, world trade showed the largest drop since 2008, and the growth of the global economy could lose up to 0.5 percentage points.