US designation of China largely symbolic – Westpac

According to Sean Callow, analyst at Westpac, US Treasury’s announcement of China to be a currency manipulator is likely to make little difference, given how far US-China trade tensions have already escalated.

Key Quotes

“In terms of how Treasury reached the manipulator designation, its own report in May 2019 concluded that China only met one of the three criteria – a very large bilateral goods surplus with the US. Its current account surplus was not above 2% of GDP and the US conceded that China has not been engaging in persistent intervention to weaken the yuan.”

“In Monday’s brief statement, Treasury Secretary Mnuchin said “China has taken concrete steps to devalue its currency” in “recent days”, which hardly qualifies as persistent, one-sided FX intervention. In short, US Treasury appears to have imposed the manipulator label on China to align with President Trump’s multiple tweeted allegations of currency manipulation, discarding its own benchmarks. But while the formal designation should not have a tangible policy impact on the US side, it does mark a further deterioration in US-China trade relations, so the negative market response is understandable.”