The U.S. Department of the Treasury announced yesterday that Secretary of the Treasury Steven Mnuchin is designating China as a “currency manipulator,” stating that “China has taken concrete steps to devalue its currency, while maintaining substantial foreign exchange reserves despite active use of such tools in the past. 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 an unfair competitive advantage in international trade.” Mnuchin’s move follows the decision of the People’s Bank of China (PBOC) to allow the yuan, also known as the renminbi, to fall to its lowest level in more than a decade. The PBOC’s decision is perceived as a response to President Donald Trump’s tweet last week stating that products on the yet-to-be finalized List 4 of imports from China valued at $300 billion will be assessed a 10 percent tariff starting September 1 (see Trump and Trade Update of August 1).

The Omnibus Trade and Competitiveness Act of 1988 directs the Treasury secretary to “consider whether countries manipulate the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.” In a recent Treasury report submitted to Congress, it noted “China’s long history of facilitating an undervalued currency through protracted, large-scale intervention in the foreign exchange market.” Under the Trade Facilitation and Trade Enforcement Act of 2015, the actions the president may take include engaging with the International Monetary Fund “for additional rigorous surveillance” of China’s macroeconomic and exchange rate policies, prohibiting the Overseas Private Investment Corporation from financing projects in China, and prohibiting the federal government from entering into procurement contracts with Chinese companies. These remedial actions, however, may only be taken “one year after the commencement of enhanced bilateral engagement.” This decision may influence the U.S. Department of Commerce to adopt a proposed rule to treat currency manipulation and undervaluation as countervailable subsidies in trade remedy cases (see Trump and Trade Update of May 24).