Just the Facts
Five Facts on Currency Manipulation
By No Labels
August 8, 2019 | Blog
Escalating the trade conflict with the U.S., China on Monday allowed its currency to weaken to an 11-year low giving its exporters a pricing edge in world markets neutralizing some of the effects of U.S. tariffs on Chinese products. After the U.S. government criticized what it called manipulation and unfair devaluation, China on Tuesday stabilized its currency. Here are five facts on on currency manipulation:
In order to lower the value of their currency and to subsidize exports, a country will sell its own currency and buy foreign currency.
Some countries deliberately influence the exchange rate between their currency and the U.S. dollar to gain an advantage in the global market. This process makes their exports cheaper in comparison to other countries.
The International Money Fund (IMF) prohibits countries from manipulating their currency to gain advantage in trade.
The IMF is committed to growth of the global economy and balanced international trade. However, the IMF lacks jurisdiction over countries and therefore cannot force them to comply with the institution’s economic policies. The IMF exercises “firm surveillance” and offers advice to countries on how changes in currency valuation may affect them in the long term.
As of June 2019 the United States is in a trade deficit.
The U.S. Census Bureau and the U.S. Bureau of Economic Analysis reported imports at $261.5 billion and exports at $206.3 billion – leaving the U.S. with a $55.2 billion deficit. President Trump is trying to reduce the trade deficit with China, at least in part, by imposing tariffs.
Chinese currency manipulation could have a negative effect on American employment rates.
When countries manipulate their currencies to subsidize their exports, it makes it difficult for U.S. exporters to compete in the foreign markets. Countries and consumers alike want to pay less for goods, therefore taking their business elsewhere and harming U.S. businesses and potentially raising unemployment rates.
The U.S. has named China a currency manipulator twice.
This week, President Trump and the U.S. Treasury labeled China a currency manipulator. This also happened in 1994 under the Clinton Administration. In 1988 the U.S. Treasury applied this label to Taiwan and South Korea.