A threat by the US president to label China a currency manipulator is misguided because China's foreign-exchange policy is already in line with US interests, said an economist.
Unlike in previous years, China no longer allows the renminbi to weaken deliberately, according to Craig Botham, emerging markets economist at Schroders. In fact, the country is spending significant sums from its foreign-exchange reserves to slow the decline of the currency.
“Ironically, though China is undoubtedly manipulating its currency, it is doing so in a way that helps rather than hurts the US,” he said.
Should Trump nevertheless instruct the treasury secretary to label China a currency manipulator, there would be few effects, said Andy Rothman, an investment strategist at Matthews Asia.
US law would require a year of “enhanced bilateral engagement” with China to persuade the country to stop manipulation, after which penalties could be applied. However, the main penalty would be to stop the US Overseas Private Investment Corporation (OPIC) from supporting US business investment in China, an empty threat given that OPIC programmes have been banned in China since 1989.
“I don’t foresee any substantive Chinese retaliation, so this is an easy campaign promise for Trump to fulfil, but without any real impact,” said Rothman.
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