President Donald Trump has presented two arguments about why he’s letting China off the hook from his campaign promise to label it a currency manipulator, an action that would have set the stage for a possible trade war if he had done it. One is based on realpolitik – the idea that it makes no strategic sense to punish China when it seems to be helping to rein in North Korea’s military ambitions. Many lawmakers and foreign-policy people agree with that.
The other is based on abracadabra – his magic-wand contention that China stopped manipulating its currency when he won the election. That’s not true, or even close. China stopped artificially devaluing the yuan before he ran for president. In fact, the yuan has dropped in value since Trump took office, quite the opposite of what he says has been going on. ”As soon as I got elected, they stopped,” he said in a CBS interview broadcast Sunday. ”It’s not going down anymore, their currency.”
A weak yuan helps Chinese exports because it makes them cheaper to buy. It disadvantages goods from the U.S. and other countries because they are more expensive to get in China. Currencies fluctuate constantly, a natural part of the trade equation. But when a country keeps its currency artificially low against the U.S. dollar, as China once did, it may be considered an unfair trade advantage. Even so, being put on a currency manipulation blacklist has limited effect, setting off a year of negotiation before any action is taken.
A brief modern history of the yuan and Trump’s pledges to act against China on his first day as president:
-China was labeled a currency manipulator from 1992 to 1994 under a U.S. law that provides for investigation of foreign exchange-rate policies, and negotiations if a country is found to be using those policies to gain an unfair advantage.
-China continued to peg the yuan to a fixed value against the U.S. dollar until mid-2005, when it announced that would stop. The yuan began to rise in value relative to the dollar, according to exchange rates tracked by markets data provider FactSet. A U.S. dollar had been consistently worth more than 8 yuan. It then began a roughly nine-year trend toward 6 yuan to the dollar.
-The value of the yuan peaked in early 2014, when the Chinese economy began to slow after years of torrid growth. The yuan then began to fall relative to the dollar, but not because Chinese officials returned to their old policy. China was actually selling off its foreign holdings to keep the yuan from losing even more of its value.
-In a Wall Street Journal opinion article in November 2015, Trump the Republican primary candidate wrote that the greatest of China’s economic ”sins” was its ”wanton manipulation of China’s currency, robbing Americans of billions of dollars of capital and millions of jobs… On day one of a Trump administration, the U.S. Treasury Department will designate China a currency manipulator.”
-In June 2016 speaking in Monessen, Pennsylvania, Trump said ”I am going to instruct my treasury secretary to label China a currency manipulator. Any country that devalues their currency in order to take unfair advantage of the United States will be met with sharply, and that includes tariffs and taxes.”
-In July, accepting the Republican presidential nomination, he said ”We are going to enforce all trade violations against any country that cheats. This includes stopping China’s outrageous theft of intellectual property, along with their illegal product dumping, and their devastating currency manipulation.”
-During the first presidential debate in September, he said ”They’re devaluing their currency, and there’s nobody in our government to fight them.”
-In October, issuing his ”contract” with voters in Gettysburg, Pennsylvania, Trump wrote that ”I will direct my Secretary of the Treasury to label China a currency manipulator.”
-On Election Day, Nov. 8, there were 6.78 yuan to a dollar. The yuan has since weakened to 6.88 to a dollar.
-This year, in an April 2 interview with the Financial Times, he said, ”When you talk about currency manipulation, when you talk about devaluations, they are world champions. And our country hasn’t had a clue, they haven’t had a clue.”
-Ten days later, the switch came in a Wall Street Journal interview: ”They’re not currency manipulators,” Trump said, further explaining that China hadn’t been manipulating its currency for months. Actually China had been intervening in markets to prop up its currency, not push it lower, for several years.
-Trump expanded on that assertion in an April 21 Associated Press interview, referring to China’s president, Xi Jinping: ”From the time I took office, he has not, they have not been currency manipulators. Because there’s a certain respect because he knew I would do something or whatever. But more importantly than him not being a currency manipulator the bigger picture, bigger than even currency manipulation, if he’s helping us with North Korea, with nuclear and all of the things that go along with it, who would call, what am I going to do, say, `By the way, would you help us with North Korea? And also, you’re a currency manipulator.’ It doesn’t work that way.”
-Then again on April 30, in a CBS interview: ”When they talk about currency manipulation, and I did say I would call China, if they were, a currency manipulator, early in my tenure. And then I get there. Number one, they – as soon as I got elected, they stopped. They’re not – it’s not going down anymore, their currency.”