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Trump and Bipartisan Majority in Congress Complicit in Chinese Currency Manipulation Canard

August 6, 2019 in Economics

By Daniel J. Ikenson

Daniel J. Ikenson

With his ill-advised, incongruous, amateurishly-executed trade
war, President Trump has uncorked a cacophony of reverberating
effects that are beginning to spiral out of control and will prove
difficult to subdue. Among those effects is the force of downward
pressure on the value of the Chinese currency, as multinational
businesses relocate to other countries to avoid the tariffs, and
the savings of Chinese households and investors go searching for
safety in the United States and elsewhere.

Trump’s chosen course of action has sent waves of
uncertainty across the globe and one of the most predictable
responses to uncertainty is flight to safety—that is,
purchases of what are considered relatively safe U.S. assets.
It’s some sort of paradox that global uncertainty—even
when induced by the risky policies and actions of an impulsive,
unpredictable U.S. president—inspires people to invest in
U.S. and other dollar-denominated assets. But it does.

As global uncertainty stokes demand for dollars, the certainty
of U.S. tariffs on Chinese-originating goods further reduces demand
for Chinese yuan, exacerbating the downward pressure on the price
of yuan in dollars. This precipitous depreciation, which is a
consequence of Trump’s policies, has got the president and
other like-minded rabble-rousers accusing the Chinese of currency
manipulation. Late yesterday, Trump’s Treasury Department
squandered its credibility by labeling China a currency
manipulator, despite Beijing meeting only one of the three criteria
necessary for such a conclusion.

Do you want to know what’s not currency
manipulation? The People’s Bank of China observing the value
of the yuan plummet as markets respond to Trump’s tariff
frenzy is not currency manipulation. The Chinese monetary
authorities have been trying to prop up the value of the yuan to
discourage capital flight and instill confidence in the yuan, but
they’ve had to burn through over $1 trillion of reserves just
to maintain the yuan’s value, which continues to fall in
response to Trump’s tariffs.

Do you want to know what is currency manipulation? The
president of the United States imploring the Federal Reserve
chairman to lower interest rates for the distinct purpose of
reducing the value of the dollar is currency manipulation.

The “scourge” of currency manipulation and what to
do about it has been vexing policymakers for a long time. Back in
2003, Sen. Chuck Schumer (D-NY) first introduced a bill calling for
a 27.5 percent tariff on all imports from China to compel Beijing
to allow the undervalued yuan to appreciate. But Schumer’s
idea was rejected as a massive consumption tax on the American
people—as well as a violation of World Trade Organization
rules (yes, youngsters, WTO compliance used to matter to U.S.
policymakers). But that didn’t stop Schumer from
re-introducing the same bill in subsequent …read more

Source: OP-EDS

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