The decision by the U.S. Department of the Treasury to label China a currency manipulator is the latest sign that Washington will resort to any possible means, no matter how unreasonable, to force China into agreeing to its trade terms.
The announcement came after the yuan’s exchange rate weakened to more than 7 to the dollar on Monday. It is ridiculous for the United States to assume that there was exchange rate manipulation based on a change in the exchange rate of the yuan on a single day.
That decline was a natural market reaction after the latest trade talks between the two countries failed to produce a breakthrough and the subsequent threat by the U.S. government it would impose new 10 percent tariffs on $300 billion worth Chinese goods starting from September.
The timing of the decision just two months after the Treasury Department determined after six month’s analysis that China was not manipulating its currency betrays the real intention of the U.S. government to use it as another means to pressure China.
Even in terms of the criteria unilaterally set by the U.S. Treasury, it is technically impossible for a country that wasn’t a manipulator only two months ago to suddenly become one.
According to the U.S. Treasury, a country is a currency manipulator if it has a large trade surplus with the US, has a current account surplus exceeding 3 percent of its GDP and is actively intervening in the currency market.
China does not meet all those criteria. Its current account surplus as a proportion of GDP, for instance, has been declining continually, standing at 0.4 percent in 2018, thanks to its economic rebalancing efforts in the past decade. There will predictably not be major changes to that ratio this year.
By politicizing the issue of currency manipulation, the U.S. government has gone so far that it will disrupt the normal order of international monetary governance. It means Washington is willfully distorting its self-set rules to accuse other countries of something nonexistent and using that as an excuse to take actions against them.
Such a unilateral, protectionist act, if unchecked, will create huge uncertainties for the world economy and global financial system, as reflected by the financial market turbulences across the world this week.