Once President-elect Donald Trump gets inaugurated, he is expected to label China as a currency manipulator through the U.S. Treasury Department’s semi-annual foreign exchange report. Although some believe that the move could worsen the already rocky relationship between the U.S. and China, this could serve as an effective strategy in influencing the trade negotiations between these two countries.
Back in December, Trump slammed China for intentionally devaluing the Yuan, which then made it harder for U.S. companies to compete with the country’s local operators. Furthermore, by lowering the value of its currency, China was able to impose larger taxes on products imported from the U.S. and other countries.
However, this is not enough for the president to label China as a currency manipulator. In order to be officially regarded by the Treasury Department as a manipulator, a country must meet three conditions: its bilateral trade surplus against the U.S. must be over $20 billion, its account surplus should exceed 3% of its GDP and its official FX purchases should be over 2% of its GDP, Zero Hedge reported.
Currently, only the first condition can be used against China, since its trade surplus in 2015 against the U.S. reached $366 billion. But, once Trump steps into office, he could revise these conditions in order to label China as a manipulator in the Treasury Department’s upcoming reports due in April and October.
Through a formal designation, the U.S.
Treasury will then be able to fully support Trump in establishing bilateral trade talks with China, something that he wants to pursue with all of the U.S.’ trade partners. Since being labeled as a currency manipulator comes with various restrictions, such as strict monitoring by the International Monetary Fund and exclusion from the U.S. Overseas Private Investment Corporation, this will prompt China in entertaining negotiations with the U.S.
Through these talks, Trump will be able to work out certain agreements for the benefit of the country’s economy such as relocating manufacturing jobs to the U.S. and lowering taxes imposed on goods entering China.