A currency war averted

Donald Trump had threatened to brand China a currency manipulator, but has now retreated from that position.

Andrew Van Sickle
By
published
in Features

"It is always pleasing when Donald Trump manages to hit upon a sensible policy and listens to the voices of reason within his administration," says the Financial Times. He had threatened to brand China a currency manipulator, but has now retreated from that position. His argument used to be that China artificially depressed the value of its currency in order to gain an unfair advantage for its exports.

This was "never a convincing charge", as Oliver Kamm notes in The Times, but to the extent that it was ever remotely valid, it now "no longer applies". The authorities have actually been trying to prop the yuan up, not weaken it, for the past couple of years. Because the economy is slowing, and investors have become rattled by the country's high overall debt load, money has been leaving the country, putting downward pressure on the currency. This has prompted the government to run down its foreign-exchange reserves to bolster the exchange rate.

In 2015, the International Monetary Fund declared that, after a rise of 25% in a decade, the yuan no longer looked undervalued, but was "broadly in line with the fundamentals", says Philip Aldrick in The Times. It's worth noting that China's current-account surplus has slid from a whopping 10% of GDP to 2.5% as the currency has appreciated. Trump has cited a big current-account surplus as evidence of China supposedly cheating the US out of prosperity.

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Whatever the reason Trump has retreated on this issue presumably he thinks he needs China to rein in North Korea "the rest of the world can breathe a sigh of relief that a currency war between the US and China has been averted", says the FT "at least for a while".

Andrew Van Sickle
Andrew Van Sickle
Editor, MoneyWeek

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.

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