The Trump administration’s exchange-rate hawks contend that the US should designate China as a “currency manipulator.” In reality, the problem is the strengthening dollar, despite massive debt US owes to foreign countries.

Before the Trump-Xi Summit, the White House has often warned about “currency manipulators” while targeting US trade deficits.

After the Summit, US Treasury Secretary Steve Mnuching was asked whether the Trump administration will move forward with a plan to label China a currency manipulator. “The currency report is going to come out in the near future, and we will address that when it comes out,” Mnuchin responded.

A (very) short history of US dollar and Chinese renminbi

For years, China pegged its currency to the US dollar. Due in part to pressure from its trading partners, Beijing in 2005 appreciated the renminbi (RMB) to US dollar by 2.1 percent and moved to a “managed float” exchange rate system, based on a basket of foreign currencies.

Subsequently, the bilateral exchange rate stayed around 6.83 RMB from July 2008 to June 2010 for damage control amid the Great Recession. Currency appreciation was resumed in June 2010, but at a slower pace than in previous years.

Despite claims of devaluation, the RMB actually appreciated by 35 percent on a nominal basis against the dollar from June 2005 through July 2015.

In August, 2015, China’s central bank took new measures to improve the market-orientation of its daily central parity rate of the RMB. This was vital to support the internationalization of the RMB. Over the next three days, the RMB depreciated against the dollar by 4.4 percent – not because the central bank was opposing the market forces but precisely because it allowed those forces to affect the currency more than before.

Strengthening dollar

From July 2015 to mid-December 2016, the RMB depreciated by 13.6% against US dollar. As the US Federal Reserve has taken steps toward interest rate normalization, US dollar has strengthened.

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