How Not to Fight a Currency War

Branding China a “Currency Manipulator” Will Only Hurt the United States

A Chinese yuan note as seen in May 2017 Thomas White/REUTERS

Earlier this month, the United States officially branded China a currency manipulator. Trade hawks have long argued that Washington should call out Beijing for holding down the value of its currency in order to unfairly boost its exports. But ironically, U.S. President Donald Trump picked a time when China wasn’t actually suppressing the yuan to formally brand it a manipulator. Although it has certainly manipulated its currency in the past, China stopped doing so in 2014. Yet Trump, upset by the yuan’s depreciation during the first week of August and frustrated by a lack of progress in U.S.-Chinese trade talks, reportedly pressed Treasury Secretary Steven Mnuchin to make the designation over Mnuchin’s own objections.

The designation is largely symbolic. Under the legislation cited by the U.S. Treasury Department, the penalty will be a year of negotiations between the United States and China, either directly or through the International Monetary Fund (IMF). In fact, the only way that the Treasury was able to designate China was through an expansive reading of the Omnibus Trade and Competitiveness Act of 1988, whose criteria for manipulation include any action in the foreign exchange market aimed at “gaining an unfair advantage in international trade.” China doesn’t meet the more technical definition of manipulation set forth in the Trade Facilitation and Trade Enforcement Act of 2015, which considers a country’s bilateral trade balance with the United States, whether it is a net lender to the rest of the world, and the extent of its intervention in the foreign exchange market. Both laws are currently on the books, and some aspects of the 1988 law actually might be better suited to addressing real cases of manipulation, but Trump’s use of the earlier law to designate China was nothing more than cheap theater.

That’s not to say the U.S. president didn’t highlight a real problem: with two flawed laws defining currency manipulation on the books, the United States lacks both

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