The US Treasury department will drop the designation of China as a currency manipulator in a gesture that aims to ease tensions with Beijing ahead of this week’s signing of a deal to halt the trade war.

The move, flagged by an administration official, would reverse last summer’s controversial decision by the US government to tag China with the label of currency manipulator, when relations between Washington and Beijing escalated sharply.

It could point to a more lasting truce between the world’s two largest economies, since it settles one of China’s biggest sources of irritation with Washington. 

The renminbi had been steadily depreciating against the dollar over the course of the trade war, offsetting the impact of US tariffs and irking US officials. It began appreciating in recent months as the world’s two largest economies sought a settlement and has swept higher in recent days, buoyed by this week’s planned signing of the trade deal.

The Treasury came under heavy criticism for labelling China a currency manipulator in the first place, with former US officials saying it was a political move to punish Beijing and put pressure on its trade negotiators. 

“It should never have happened . . . China manages, but does not manipulate its currency,” said Mark Sobel, a former Treasury official in the Obama administration. “Its current account surplus is small as a share of GDP. China hasn’t been intervening in currency markets for years.”

Liu He, China’s vice-premier, is due in Washington this week to participate in a ceremony to sign the trade deal at the White House with US officials, an event that is also expected to feature an appearance by Donald Trump, the US president. The “phase one” trade deal which will be agreed this week is expected to include a currency chapter that commits Beijing to not engaging in competitive devaluations.,

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The agreement reached by the US and China will pause any escalations in tariffs for the foreseeable future and roll back a small portion of existing US levies in Chinese goods.

In exchange, China has said it will purchase at least $200bn in US goods, including at least $40bn in American farm products, and has made a string of other pledges on issues ranging from market access for financial services companies to the protection of intellectual property. However, the “phase one” deal does not address some of the deeper and more thorny sources of economic tensions between Washington and Beijing, including China’s use of industrial subsidies and cybertheft. 

The move by the US administration to drop its designation of China as a currency manipulator comes amid other signs that the two countries are committed to a more peaceful year in their trade relationship. The US and China are also planning to revive a formal economic dialogue between the two countries, similar to the semi-annual gatherings that took place during previous administrations — and a sign that the Trump administration was tilting back towards engagement with China rather than just confrontation.

The decision to reverse the currency manipulator designation could face a backlash from China hawks on Capitol Hill who have been pleading for the Treasury to keep the pressure up on Beijing.

The US Treasury and White House declined to comment. 



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