WASHINGTON DC – The US Treasury Department accused China of “manipulating” its currency after the yuan dropped sharply against the dollar amid the escalating trade war between Washington and Beijing.
In an annual review of China’s economic policies, released on Friday, the International Monetary Fund maintained its assessment that the value of the yuan has been broadly aligned with economic fundamentals, thus questioning the statement from the Trump administration that Beijing was manipulating its currency to gain an unfair competitive advantage in international trade.
The IMF said in the document that China took steps to strengthen its currency after it fell between mid-June and early August 2018.
Overall, the Chinese currency was practically stable last year, down 2.5 percent from a basket of foreign currencies.
James Daniel, head of the IMF’s mission to China, told reporters that Fund staff concluded that the 2018 yuan value was in line with medium-term fundamentals and desirable policies, ie not significantly overvalued or undervalued.
The IMF review was made public on Aug. 9 – just four days after the US Treasury Department labeled China a “currency manipulator” in a statement that is likely to intensify existing tensions between Beijing and Washington.
It was also announced that US Treasury Secretary Steven Mnuchin would collaborate with the IMF to eliminate the supposed unfair competitive advantage created by China’s latest actions.
The decision came shortly after the People’s Bank of China allowed the exchange rate to exceed 7 yuan per dollar for the first time in 11 years, causing the financial markets to collapse.
Donald Trump Position
The People’s Bank of China explained that the devaluation was triggered by “measures of unilateralism and trade protectionism and the imposition of tariff increases on China.”
US President Donald Trump said he would not devalue the dollar amid the ongoing trade war with Beijing, although he tweeted Aug. 8 saying he had no “enthusiasm for a very strong dollar.”
The next day, he said at a White House press conference that they don’t have to devalue the US currency since they have such a strong dollar.
“The problem is, our dollar is at a level that it makes it hard. But the advantage to doing what we have is money is pouring in because we have the safest currency in the world. We have the standard of the world. But because it’s so strong — it’s gotten so strong because other countries have problems — it makes it harder for our manufacturers,” he said.
The sharp devaluation of the yuan followed Trump’s announcement that he would impose a 10% tariff on another $300 billion in Chinese products from September 1. He had already imposed a 25% t tax on Chinese goods worth $250 billion.
In the report, the IMF also noted that if Trump had introduced 25% tariffs on $300 billion in Chinese imports, this would have reduced Beijing’s growth by about 0.8 percentage points over the next 12 months.