This archive report was first published on 14 January 2020.
On January 13, 2020, the US Treasury announced that it would remove the currency manipulator label it had imposed on China in August 2019. The decision comes just two days before President Donald Trump is set to sign a 'phase one' trade agreement with China.
The US Treasury's semi-annual report to Congress stated that the yuan has strengthened and Beijing is no longer considered a currency manipulator. This decision is a significant development in the ongoing trade tensions between the US and China.
US Secretary of the Treasury Steven Mnuchin said that China has made 'enforceable commitments' not to devalue its currency to gain a competitive trade advantage. The phase one trade deal addresses currency issues, with China agreeing to refrain from competitive devaluation and not target its exchange rate for competitive purposes.
However, many economists questioned the decision to label China a manipulator in the first place. Mark Sobel, a former Treasury official, said that China shouldn't have been designated as a manipulator, citing a small current account surplus and scant intervention.
The US Treasury's report also highlighted the need for China to take steps to stimulate domestic demand and reduce its reliance on investment and exports. The report stated that the US trade deficit in goods through November 2019 was running at over $320 billion, which is about $62 billion below the same period of 2018.
The US and China will hold 'at least bi-annual' meetings as part of the initial trade deal, and US Treasury Secretary Steven Mnuchin and Federal Reserve Governor Jerome Powell will conduct macro-economic meetings with top Chinese officials on a regular basis.
The currency report had eight other countries on the 'monitoring list' due to concerns about their currency practices: Germany, Ireland, Italy, Japan, South Korea, Malaysia, Singapore, Switzerland, and Vietnam.
