Trump’s tough talk on China’s currency could backfire
President Trump risks an embarrassing blunder if he doesn’t tone down his rhetoric on China’s currency when he comes face to face with President Xi Jinping.
The first meeting between the leaders of the world’s two largest economies begins later Thursday.
Trump believes Beijing has kept its currency — the yuan — artificially low as part of a trade policy that he says has destroyed American jobs and created an enormous gap between what the U.S. imports and exports from China.
That may have been true in the past, but despite plenty of evidence that it’s no longer a fair criticism, Trump won’t let the issue drop. This week he labeled China “world champions” of currency devaluation in an interview with the Financial Times, returning to a riff from his campaign.
“The accusation that China is manipulating its currency in order to gain an unfair advantage for its exports is not supported by economic facts,” said Eswar Prasad, a trade professor at Cornell University.
“China has in fact been doing the U.S. a favor by not letting the [yuan] depreciate as much and as fast against the dollar as the markets seem to want.”
There’s a huge amount at stake. U.S.-China trade was worth nearly $650 billion last year, and big companies such as Apple (AAPL, Tech30), GM (GM) and Boeing (BA) have a lot riding on the relationship.
Words vs. action
A gap has already emerged between Trump’s rhetoric on China and his administration’s actions.
He said the U.S. Treasury Department would formally label China a currency manipulator on day one of his term in office.
It didn’t. Treasury Secretary Steven Mnuchin said in February that the administration hadn’t yet made a judgment on China’s currency. (That same day, Trump called China “grand champions” of currency manipulation.)
The Treasury Department is expected to issue its next report on foreign currencies later this month. It would be hard pressed to justify taking an aggressive stance on the yuan.
