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US avoids confrontation over yuan

2017-04-17

Source: Xinhua    Published: 2017-4-16

 

‘No major trading partner manipulating currency’


Despite speculation to the contrary, the US government has decided not to brand China a currency manipulator. After seeking truth from facts, the US has chosen a direction that will benefit the two economies and the world at large.


In a semiannual report to the US Congress published Friday, the Treasury Department declared that no major trading partner of the US, including China, was manipulating its currency.


While it is a sharp reversal from the rhetoric of US President Donald Trump`s campaign trail, nearly three months into his presidency, this different tone chimes with a more realistic view of China`s currency.


It shows his tough talk on China was only campaign rhetoric, said Wei Benhua, a senior researcher at Chongyang Institute for Financial Studies at Renmin University.


Economists have argued that China currently does not merit the label of currency manipulator, and the Chinese currency has been at equilibrium level in recent years.


The US Treasury uses three measures to decide if a currency is being manipulated: Whether the country runs a sizeable trade surplus with the US; whether its current-account surplus exceeds 3 percent of GDP, and whether it spends more than 2 percent a year to buy foreign assets to suppress the value of its currency.


China only meets the first criteria by running a trade surplus of more than $20 billion with the US, said Zhu Jianfang, chief economist with CITIC Securities.


China has spared no effort to keep the yuan stable over the past few years, which is exactly the opposite of currency manipulation, he added.


The US administration`s new stance on the currency issue was likely influenced by the recent meeting of the leaders of the two countries in Florida, where they were able to better understand each other, said Zhao Xijun, a finance professor with Renmin University.


With the currency spat subsiding, economists said the chance of a trade war between the world`s two largest economies is slight.


"The possibility of a trade war could be ruled out as the US government has dropped the manipulator claim," Zhu Jianfang said, adding the two countries have huge space for cooperation, which is good for both sides.


"It would be hard for me to imagine a full-on trade war between the US and China as it would be too damaging to the two greatest economies in the world, and it could easily pull the rest of the world into the biggest recession we will ever see," said John Ling, president of the Council of American States in China.

 

Wei Benhua is a senior fellow of Chongyang Institute for Financial Studies, Renmin University of China.

Key Words: China   US   yuan  

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