President Donald Trump on Thursday described China as a “grand champion” in currency manipulation.
In an interview with Reuters, he also said China could easily resolve tensions with North Korea if it wanted to.
China has been trying to control the rate of its currency’s depreciation since 2014, and it has had a harder time keeping it stable in trade-weighted terms since mid-2016. A weaker currency makes exports more competitive.
There are three criteria that must be met for a country to be labeled a currency manipulator by the Treasury Department:
The country must have a significant bilateral trade surplus with the US. The country has a “material” currency account surplus. The country is engaged in persistent one-sided intervention in the foreign exchange market.
Last April, the Treasury added China to a list of major trading partners that should be monitored based on an analysis of these conditions. After a country is added to the semi-annual list, it is retained for at least two consecutive reports.
While China's intervention policy "can indeed be described as 'one sided' as proscribed by US law, it is intervention in the direction that would normally be viewed as in the US' interest - to prevent even faster depreciation of the Chinese currency," Deutsche Bank economists wrote in a recent note to clients. They expected Trump to label China as a currency manipulator and to propose penalties if it does not enter negotiations to lower its trade surplus with the US.
The last time the US designated China a currency manipulator was from 1992 to 1994. Trump had promised to label China as such on day one.