The White House is developing a plan to discourage Beijing from undervaluing the yuan.
A special plan is currently being developed by the Donald Trump’s administration in order to discourage China from undervaluing the yuan, the Wall Street Journal reported on January 13. According to the plan, the practice of currency manipulation as an unfair subsidy when employed by any country should be designated by US Secretary of Commerce Wilbur Ross. In this way, Washington aims to avoid a direct confrontation with China.
The plan is an implementation of Trump’s pre-election rhetoric in somewhat softer way. Trump repeatedly accused Beijing of its perceived currency manipulation and “killing” the US on trade, making China’s exports more competitive in the global market.
“We can’t continue to allow China to rape our country, and that’s what they’re doing,” Trump said in Indiana in May 2016.
As a senior fellow at the Peterson Institute for International Economics, Gary Hufbauer, told the Sputnik radio, if Washington tries to ‘punish’ Beijing for perceived currency manipulation, the dispute could end up before a tribunal of the World Trade Organization (WTO).
“This has a long way to travel, but it’s the beginning of what might be a conflict over currency values,” Hufbauer said. “Defining currency manipulation is not easy, and assessing how much currency manipulation amounts to a subsidy is another difficult question and if the US does this on its own, without some sort of international agreement on what the appropriate definition is and how you go about measuring the subsidy, there is sure to be controversy and conflict over the practice.”
According to the senior fellow, it is unlikely that a trade conflict between Washington and Beijing will turn into a full-blown trade war, however, ‘trade friction’ is enough possible.
“I think there’ll be a great many trade cases involving China, including [with respect to] this currency manipulation area. I don’t think it will erupt into a full-fledged trade war, but a lot of trade skirmishes, a lot of friction looks like the path the administration is prepared to pursue,” Hufbauer said.
He noted that most likely, China will retaliate against any protective measures, imposed by the US, “at least matching what the US or some other country gives. That’s the Chinese way.”
At the same time, the International Monetary Fund (IMF) and other international observers have not found any evidences of the fact that Beijing is currently undervaluing the yuan.
“Today, what the Chinese authorities are doing, is actually buying renminbi, they’re trying to prop up its value. That’s exactly the opposite of what’s being asserted in Washington. So, all in all there are a lot of curious twists in this case,” Hufbauer pointed out.