By ALEXANDER WU | May 2, 2017 | Barcelona, Spain
From his first day in office, US President Donald Trump mandated for his Secretary of the Treasury to label China as a currency manipulator, just as his republican candidate predecessor Mitt Romney had done before him. This would lead to Trump trying to negotiate with the Chinese to reduce their large trade surplus by threatening to limit imports into the US, thereby reducing the US trade deficit and stimulating economic growth. However, the truth is that China has barely manipulated it’s currency at all in the past couple of years, making the president’s accusations difficult to prove.
From 2003 to 2014, China had actually been the greatest currency manipulator of all time, bringing in more than $ 300 billion annually to protect its currency from upward growth by artificially keeping the exchange rate of the dollar strong and the renminbi’s exchange rate weak. This manipulation is the leading factor of China’s large trade surpluses, which at one point reached 10 percent of its entire GDP in 2007.
Arguments to Trump’s claims of Chinese currency manipulation include that many governments try to influence their exchange rates and China is only one of many countries that attempts to gain an advantage through undervaluing its currency. Further arguments include that China has actually been rather cooperative in previous years, allowing yuan to appreciate by a third, leading many economists, even at the IMF, to say that it is actually no longer even undervalued.
In reality, there are actually only a few major currencies, including the dollar and euro, which the government allows to “free floating” currency based on global market forces of supply and demand. Generally, countries are only criticized for currency manipulation when the government is keeping it undervalued for the sole purpose of giving an artificial boost to exports while keeping out imports.
Based on the facts stated above, I believe both parties, the US and China are somewhat at fault here. Although China has made progress and shown willingness to cooperate in the past few years by allowing currency to appreciate, numbers still seem to indicate that it is artificially undervalued, resulting in China’s continued dominance in trade with so much exports. On the other hand, I also believe that Trump is out of place to make such strong accusations, when China has clearly made an effort to amend this by appreciating it’s currency in past years. There seems to be an overall lack of communication between the countries, as it is more of an accusation battle rather than diplomatic negotiation regarding international trade.
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