First such move since 1994 fulfills Trump campaign promise and comes as stock markets fall
The US has labeled China a currency manipulator, in a move that brings already tense relations between the two countries to a boil.
On Monday, the US treasury secretary, Steven Mnuchin, accused China of manipulating its currency to gain unfair competitive advantage in international trade. The US will now ask the International Monetary Fund to eliminate the unfair competitive advantage created by Chinas latest actions.
It is the first such move since 1994 and came as international stock markets fell on fears of an escalation in the simmering conflict between the two trading superpowers. The Dow Jones index lost close to 3% on Monday following similar falls in Asia and Europe.
The move fulfills Donald Trumps election campaign promise to label China a currency manipulator. China is intent on continuing to receive the hundreds of Billions of Dollars they have been taking from the US with unfair trade practices and currency manipulation. So one-sided, it should have been stopped many years ago! he wrote on Twitter.
Chinas central bank said the depreciation was due to the effects of unilateralist and trade-protectionist measures and the expectations for tariffs against China.
Beijing later said it would stop buying US agricultural products and will not rule out import tariffs on newly purchased US agricultural products.
The announcement will inflame a year-long trade war with the US. Trump has already attacked Beijing for reneging on what he claims was a promise to buy more agricultural goods from the US, a claim Chinese authorities dispute.
The sharp 1.4% drop in the yuan comes days after Trump stunned financial markets by vowing to impose 10% tariffs on the remaining $300bn of Chinese imports from 1 September, abruptly breaking a brief ceasefire in a bruising trade war that has disrupted global supply chains and slowed growth.
The news knocked the dollar sharply lower and bolstered the price of gold.
The treasury department said a statement from the Peoples Bank of China (PBOC) on Monday made clear that Chinese authorities had ample control over the yuan exchange rate.
The PBOC said Monday it would continue to … take necessary and targeted measures against the positive feedback behavior that may occur in the foreign exchange market.
This is an open acknowledgement by the PBOC that it has extensive experience manipulating its currency and remains prepared to do so on an ongoing basis, the treasury statement said.
It said Chinas actions violated its commitment to refrain from competitive devaluation as part of the Group of 20 industrialized countries. The treasury said it expected China to adhere to those commitments and not target Chinas exchange rate for competitive purposes.
US law sets out three criteria for identifying manipulation among major trading partners: a material global current account surplus, a significant bilateral trade surplus with the United States, and persistent one-way intervention in foreign exchange markets.
After determining a country is a manipulator, the treasury is required to demand special talks aimed at correcting an undervalued currency, with penalties such as exclusion from US government procurement contracts.
The US treasury designated Taiwan and South Korea as currency manipulators in 1988, the year that Congress enacted the currency review law. China was last designated a currency manipulator under the Clinton administration in 1994.
In May, the treasury refrained from declaring China a currency manipulator based on new, tougher criteria measuring a countrys global current account surplus, along with persistent one-way intervention and a large bilateral trade surplus with the US.
In the report, however, the treasury kept China on an enhanced monitoring list due to a misalignment and undervaluation of the RMB relative to the dollar.
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