US Treasury Secretary Steven Mnuchin said Friday he had told the head of China‘s central bank about his concerns over the weakness of China’s currency.
Mnuchin said he had had “a constructive discussion about the currency” with People’s Bank of China Governor Yi Gang in Bali, Indonesia where they are attending the annual meetings of the International Monetary Fund and World Bank.
“I am concerned about the weakness in the currency. I’ve reflected that to them,” Mnuchin said in a TV interview on CNBC. Chinese officials “made it clear it’s not in their interest to see depreciation further.”
He said he also discussed the ongoing trade dispute with Yi and confirmed there were discussions about a potential meeting between President Donald Trump and Chinese President Xi Jinping during the Group of 20 summit in Buenos Aires in November.
But the meeting would only happen if there is enough progress in the trade discussions, he said. “There is no deadline.”
“We’ve been very clear with China that we need to have structural changes, that we need a reciprocal trading relationship and we should be able to increase our exports by hundreds of billions of dollars,” he said.
And Mnuchin indicated the currency would be part of any agreement.
“We’re going to make sure currency is definitely part of these discussions. We want to make sure that whatever we make up on trade, we don’t lose on currencies,” he said.
However, he declined to comment on whether the US Treasury would declare Beijing a “currency manipulator” in a report due out next week. That designation would be a first for China and would trigger a process that could lead to punitive steps after a series of talks.
– Currency manipulator? –
Washington has long argued that China keeps its currency artificially low to make its exports more competitive but in recent years the yuan or renminbi (RMB) has strengthened and is viewed by economists as more in line with fundamentals.
But as US interest rates have risen, the US dollar has strengthened further, which makes American exports more expensive.
Treasury issues a currency report twice a year to Congress to identify countries that are trying to artificially manage the value of their currency to gain a trade advantage.
While China is one of six countries on the “watch list,” the last report in April acknowledged that the RMB “generally moved against the dollar in a direction that should” help reduce China’s trade surplus with the United States and had strengthened early in the year.
Beijing was included on the watch list because the surplus in goods trade made up a significant part of the US total trade deficit. In 2017, the US had a deficit with China of $376 billion, excluding services, out of a total goods deficit with the world of $832 billion.
Naming China a manipulator would be a hardline signal in diplomatic terms but actual repercussions would start slowly. They would include initiating negotiations, limiting export finance help, ordering the IMF to conduct “additional rigorous surveillance,” halting government purchases and blocking any potential trade agreement.
Mnuchin noted that the recent agreement to update the free trade pact with Mexico and Canada for the first time included a currency provision.
“That’s going to be important going forward for trade negotiations.”