- The Washington Times - Monday, August 5, 2019

The U.S. government officially designated China a currency manipulator Monday, treading where the past two administrations resisted, as President Trump’s trade feud with Beijing escalated.

Treasury Secretary Steven T. Mnuchin announced the step Monday evening after the markets closed during a day of economic chaos and rhetorical jabs.

The day began with Chinese officials letting the yuan drop to an 11-year low versus the dollar, at more than 7-to-1. Stocks tumbled globally, and the Dow Jones Industrial Average shed 767 points, or 2.9%, marking the sixth-worst point drop on record and its worst performance this year.

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Chinese officials said the yuan’s fall was connected to Mr. Trump’s announcement last week that he will impose further tariffs on $300 billion of Chinese imports starting next month.

In addition to letting its currency fall, the Chinese Commerce Ministry announced that it was halting orders of U.S. agricultural products, apparently reneging on an agreement between President Xi Jinping and Mr. Trump. The Commerce Ministry also said it was pondering its own retaliatory tariffs.

Mr. Mnuchin capped off the day with his designation of China as a currency manipulator. He said he was acting “under the auspices” of the president.

“In recent days, China has taken concrete steps to devalue its currency while maintaining substantial foreign exchange reserves despite active use of such tools in the past,” he said. “The context of these actions and the implausibility of China’s market stability rationale confirm that the purpose of China’s currency devaluation is to gain unfair competitive advantage in international trade.”

The immediate effect of the label is to force negotiations among Beijing, Washington and the International Monetary Fund, but the move is huge symbolically. Past U.S. administrations resisted the designation for fear of upsetting a massive trading partner. China hasn’t been labeled a manipulator since the 1990s.

“Yowza. This is escalating fast,” Paul Krugman, a Nobel Prize-winning economist, said in a Twitter message.

He and other analysts questioned the justification of the move. What China did Monday, they said, was to stop artificially propping up the yuan.

Still, the move was seen as a sign that the trade dispute between the world’s two largest economies has crossed new lines.

“Now is it a trade war?” Bush administration Treasury official Tony Fratto wondered on Twitter.

Mr. Trump has been claiming Chinese currency manipulation for months, but his administration had resisted taking the official step of officially designating it.

To make the list, a country is supposed to cross three lines: have a large trade surplus with the U.S., have a current account surplus, and engage in intervention in the foreign exchange market. In its latest report in May, China was deemed to be in violation of the first prong but not of the other two.

Mr. Mnuchin said Monday that China acknowledges it has “ample control” over its currency’s exchange rate and pointed to a statement from the People’s Bank of China earlier in the day that he claimed as proof.

The escalation in tensions has been stunning.

A week ago, top U.S. negotiators were in Shanghai to work on a broad trade deal Mr. Trump has been promising. The negotiators said the talks were “constructive” and promised another round of meetings in September in the U.S.

By Thursday, though, Mr. Trump had sent talks off course by announcing a new 10% tariff on $300 billion worth of Chinese imports, slated to begin Sept. 1.

He said Mr. Xi was “not going fast enough” to reach a deal. Mr. Trump also lashed out at Mr. Xi over other matters, saying the Chinese government hadn’t lived up to its promise to curtail the flow of fentanyl, a powerful synthetic opioid fueling the drug epidemic in the U.S., nor has China stepped up purchases of American agricultural products, as promised.

The new tariffs are on top of ones Mr. Trump previously announced on $250 billion of Chinese imports.

The escalating dispute rattled investors worried about the slowing global economy.

The Dow’s 767-point loss equated to a 2.9% drop, while the Nasdaq composite index fell 3.5% and the S&P 500 dropped 3%.

The sell-off began in Asia, where indexes lost more than 1%, and grew as it swept through Europe to the Americas. Investors bought up safe-haven U.S. government bonds and gold.

A coalition of trade and farm groups that launched a nationwide campaign, “Tariffs Hurt the Heartland,” demanded that U.S. and Chinese officials get back to negotiations immediately.

“Behind today’s market turmoil are real Americans who have been used as bargaining chips in this trade war,” said Jonathan Gold, a spokesman for the coalition. “Nobody wins in a trade war, and right now, everyone is losing.”

Mr. Trump discounts those claims of pain and insists the U.S. is fine and the federal government is rolling in cash raised from the tariffs. He says farmers whose products are snared in the dispute are being made whole by government assistance checks.

“Based on the historic currency manipulation by China, it is now even more obvious to everyone that Americans are not paying for the Tariffs – they are being paid for compliments of China, and the U.S. is taking in tens of Billions of Dollars!” the president tweeted, using his unique style of syntax to drive his point home.

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