22 February 2019
Will Donald Trump follow through on his threat to brand China a currency manipulator? Photo: CNSA
Will Donald Trump follow through on his threat to brand China a currency manipulator? Photo: CNSA

What’s the real story behind the yuan manipulation?

In the policy outline of US President-elect Donald Trump for his first 100 days in office, he vows to declare China a “currency manipulator” and impose punitive anti-dumping tariffs on Chinese products.

As he put it from day one of his campaign, China has been devaluing its currency, the renminbi, through executive measures in order to give its exporters an unfair edge over other foreign competitors and boost the country’s exports, thereby putting American manufacturers out of business and costing hundreds of thousands of US blue-collar workers their jobs.

His “China threat” rhetoric resonated with tens of millions of voters.

However, has Trump told the public the whole truth about China’s manipulation of its currency?

My answer: no, he hasn’t.

It is true that China devalued its currency by nearly 41 percent between 1994 and 1996 in order to boost its exports and turn itself into the world’s factory.

However, the situation has changed since 2005 when China started to ramp up the renminbi against other currencies at a steady rate.

Since then, the renminbi has been steadily on the rise.

Between 2005 and 2015, the renminbi rose by more than 36 percent against the US dollar and about 50 percent against the currencies of South American countries and the euro.

It’s believed that the reason China has decided to gradually strengthen the renminbi is that its labor-intensive and low-end manufacturing industry is rapidly losing its competitiveness in the global market and a weak currency can no longer boost the country’s exports.

On the other hand, as demand for foreign goods by the fledgling Chinese middle class rises, a weak renminbi severely undermines their purchasing power.

Mounting international discontent with the undervalued renminbi also means China has no choice but to raise the value of its currency.

In October this year, a report released by the US Department of Treasury made it clear China is no longer a currency manipulator.

As in previous US presidential elections in the past two decades, the recent election highlighted claims over China’s supposed currency manipulation.

This was particularly true for Trump.

However, the fact is, while many candidates had slammed Beijing for its currency and called for sanctions against China, they rarely translated their election promise into action once elected.

We won’t know whether Trump will go back on his word like many of his predecessors until he assumes office in January.

This article appeared in the Hong Kong Economic Journal on Nov. 23.

Translation by Alan Lee

[Chinese version 中文版]

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Associate professor and director of Global Studies Programme, Faculty of Social Science, at the Chinese University of Hong Kong; Lead Writer (Global) at the Hong Kong Economic Journal

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