IT IS A quarter of a century since the United States branded China as a currency manipulator. President Bill Clinton did so in 1994. Now President Donald Trump has followed suit.
The unexpected move marks an escalation in the bilateral trade dispute. As the Reuters news agency notes:
The announcement came hours after China let the yuan break through the key 7-per-dollar level for the first time in more than a decade, in a sign Beijing might be willing to tolerate more currency weakness as Washington threatens to impose more tariffs on Chinese goods from Sept. 1.
The decision will have more symbolic than practical impact. The sanction for currency manipulation is tariffs, which are already being applied. The US Treasury is now required to hold special talks with China, but broader talks over trade and technology are already in train.
If there is a new element, it is that the US Treasury will consult with the International Monetary Fund, dragging that institution into the bilateral dispute. Just three weeks ago, the Fund declared the yuan to be in line with China’s economic fundamentals and the US dollar to be overvalued by up to 12%. Awkward.