The power of a label: currency manipulation

The power of a label: currency manipulation

The North Korean threat has dominated the headlines over the past week, but a more dangerous conflict is lurking: a

Photo: Xaume Olleros/Bloomberg

Photo: Xaume Olleros/Bloomberg

The North Korean threat has dominated the headlines over the past week, but a more dangerous conflict is lurking: a trade war between the US and China.

Since taking office in January, Donald Trump has forged a reputation for fulfilling his campaign promises, no matter how outlandish. But there’s one pledge he’s yet to address: labelling China a currency manipulator. This may change when Treasury Secretary Steve Mnuchin releases a foreign exchange report in April.

To be sure, China has engaged in large-scale currency intervention in the past. By exchanging the yuan for huge amounts of US dollars, Beijing increased the supply of its currency, thus pushing its value down. But whether Beijing still engages in such measures is questionable.

Why is this important? An announcement labelling China a currency manipulator could spark a tit-for-tat trade war between the two countries which, together, account for almost half the world economy. Neither country can afford that and nor can regional partners.

Beyond North Korea, Secretary of State Rex Tillerson’s meet-and-greet with President Xi on Sunday will set the tone for trade-related issues; the two may even seek to get a head start on April’s potentially dangerous report.