For the first time in 25 years, the U.S. Treasury Department on Monday named China a currency manipulator — a move that looks set to worsen a trade war that has already dragged on the global economy.
That action from President Donald Trump’s administration came after China allowed its currency, the yuan, to weaken to more than 7 per U.S. dollar — a level many analysts and investors considered important. Trump, for his part, called the slide in the Chinese yuan “a major violation.”
Some analysts said Beijing’s move to weaken the yuan was clearly made in retaliation to Trump’s latest tariff threat. The president announced last week that Washington will slap 10% tariffs on $300 billion of Chinese goods starting Sept. 1. If that goes ahead, the U.S. will have imposed elevated tariffs on all goods it buys from China.
The U.S. and China — the world’s top two economies — have over the past year been locked in a trade war that has spilled into areas such as technology and now currency. Trump’s tariff threat last week came just after both sides resumed negotiations for a deal, which some experts said have become increasingly difficult to conclude.
Beijing, for its part, looks like it has “given up on the trade negotiation,” David Cui, head of China equity strategy at Bank of America Merrill Lynch, told CNBC’s “Street Signs” on Tuesday.
He explained that Beijing letting the Chinese yuan slide past 7 is “a big event” which adds to signs of “a protracted conflict” between the two countries.
On Monday, the Chinese central bank officially denied that it’s decision to allow the yuan to weaken is meant as a response to American tariffs.
But the U.S. on Monday slapped the label on China under an older law — the Omnibus Foreign Trade and Competitiveness Act of 1988. That offers “greater subjectivity” in naming a country a currency manipulator, said Khoon Goh, head of Asia research at Australian bank ANZ.