Dominic Rushe* – The Guardian
Trade war rhetoric ratchets up as Beijing responds to US claim of being ‘a currency manipulator’
China stepped up the trade war rhetoric on Tuesday, accusing the US of “deliberately destroying international order” with “unilateralism and protectionism”.
A day after Washington branded China a currency manipulator in a rapidly escalating trade dispute, China’s central bank said it “deeply regretted” the move by the US and said such behaviour “seriously undermined international rules” and damaged the global economy.
In a strongly worded editorial in the People’s Daily, the official newspaper of the Chinese Communist party, China accused the US of “deliberately destroying the international order” and holding its own citizens hostage.
Without mentioning Donald Trump or Washington’s accusations of currency manipulation, it said: “Today some in America are obsessed with American privilege to the point of destroying international rules and the international system … These Americans need to wake up!”
“The responsibility of big countries is to provide the world with stability and certainty while creating conditions and opportunities for the common development of all countries,” according to the editorial.
“But some people in the United States do just the opposite,” it said.
On Monday, the US labelled China a currency manipulator, in a move that brings already tense relations to a boil.
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 China’s 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.
On Tuesday, Asian markets fell. By the middle of the trading day Australia’s ASX200 had fallen 2%, the Hang Seng was down 0.7%, and the Nikkei 0.7%.
The move to designate China a currency manipulator fulfils Donald Trump’s election campaign promise: “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.
In early offshore Asian trading on Tuesday, the yuan fell as low as 7.1397 per dollar, before clawing back most of the losses after China’s central bank said it was selling yuan-denominated bills in Hong Kong, in a move seen as curtailing short-selling of the currency.
China’s central bank said the depreciation in its currency 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 would “not rule out import tariffs on newly purchased US agricultural products”.
In another editorial on Tuesday, the People’s Daily blamed the US for creating new obstacles in trade talks: “A drowning man will clutch at a straw, but he should never blame the others for his own awkward situation.”
Washington’s currency manipulation claim will inflame a year-long trade war with China . 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 came 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 People’s Bank of China (PBOC) on Monday made clear that Chinese authorities had ample control over the yuan exchange rate.
The PBOC said on Monday it would “continue to … take necessary and targeted measures against the positive feedback behaviour that may occur in the foreign exchange market”.
The US treasury statement said: “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.”
It said China’s actions violated its commitment to refrain from competitive devaluation as part of the Group of 20 industrialised countries. The treasury said it expected China to adhere to those commitments and not target China’s 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 country’s 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”.
Also on Tuesday, Beijing also warned that all “counter measures” were “on the table” if the US placed intermediate-range ground missiles in the region. The US defence secretary, Mark Esper, said on Saturday that he was in favour of putting such missiles in Asia soon.
Fu Cong, of China’s foreign ministry, warned China’s neighbours, including Japan, South Korea and Australia, not to allow the US deployment in their territory. Fu said: “If the US deploys missiles in this part of the world, at the doorstep of China, China will be forced to take countermeasures.” Tue 6 Aug 2019
*Dominic Rushe is business editor for Guardian US. He was part of the Guardian team that won the 2014 Pulitzer prize for public service journalism. With Lily Kuo in Hong Kong and agencies.