Trump administration inconsistent on currency

US President Donald Trump administration has again shown inconsistency in policy when Trump declared China "grand champions" of currency manipulation on Thursday, hours after his Treasury Secretary Steven Mnuchin played down the issue.

It happens at a time when many US economists have dismissed Trump's accusation as "factually incorrect" and "ineffectual".

Trump told Reuters on Thursday that he has not "held back" in his assessment that China manipulates its yuan currency, despite not acting on a campaign promise to declare it a currency manipulator on his first day in office.

"Well they, I think they're grand champions at manipulation of currency. So I haven't held back," Trump said. "We'll see what happens," Reuters quoted Trump as saying.

Early in the day, Secretary Mnuchin expressed no urgency to designate China a currency manipulator. No announcement on currency manipulation will come before the Treasury's April report, Mnuchin told Bloomberg News on Thursday.

"The Trump administration seems to be signaling a slightly less confrontational approach to China on trade and currency issues," said Eswar Prasad, a senior fellow at the Brookings Institution and a former IMF China Division chief.

He said, however, there is still the potential for rising economic tensions with China, especially if the US bilateral trade deficit with China continues to grow.

Prasad told China Daily on Thursday that the US Treasury seems to be backing off from any immediate moves to accuse any of its major trading partners of currency manipulation.

"But this could just be a temporary respite as Treasury works on devising criteria for currency manipulation that catch only the right fish but also do not catch too many fish in the net," said Prasad, author of the book Gaining Currency: The Rise of the Renminbi.

Besides China, Japan and some other nations have also been accused by Trump for currency manipulation.

US economists have expressed strong disagreement with Trump's accusation on China. Fred Bergsten, a senior fellow and founding director of the Peterson Institute for International Economics, has repeatedly said that China has not been manipulating its currency since 2014, arguing that China's recent actions to prop up the yuan has made the US economy more competitive, not less competitive.

He called it both "factually incorrect" and "ineffectual" to label China a currency manipulator.

It is widely believed that if the Chinese government does not take some measures soon, the yuan will devalue further against the US dollar, thereby hurting the US economy.

"It's ironic that US officials continue to call China a currency manipulator when it has been intervening to keep the value of its currency high, not low," David Dollar, a senior fellow at Brookings and a former US Treasury emissary in Beijing, wrote on the Brookings website on Jan 26.

In the last US Treasury report issued in October, the Obama administration said China only met the first of the three criteria to be labeled a currency manipulator — a significant bilateral trade surplus with the US, a material current account surplus (more than 3 percent of GDP) and persistent one-sided intervention in its currency market.

If the US names China a currency manipulator, it would require China and the US to start negotiations on the issue. The US might ask the International Monetary Fund (IMF) to provide expert assessment. IMF's last report on the Chinese economy said the value of Chinese currency "remains broadly in line with fundamentals".

Mnuchin told IMF Managing Director Christine Lagarde in a phone call this week that he wants the fund to "provide frank and candid analysis of the exchange rate policies" of member countries. But he also assured Lagarde that the US wants to ensure financial stability, according to US news media.

Mnuchin's words on Thursday came less than a week after his separate phone calls with Vice-Premier Wang Yang, Minister of the Office of Central Leading Group on Finance and Economic Affairs Liu He, People's Bank of China Governor Zhou Xiaochuan and Minister of Finance Xiao Jie.

The readout from the Treasury spokesman said: "The secretary emphasized the importance of achieving a more balanced bilateral economic relationship going forward. He conveyed his commitment to working with the Chinese leadership on a comprehensive set of economic, financial, trade and investment, and illicit finance issues, in both bilateral and multilateral forums."