Why label China a currency manipulator now?
Well, it is something that administrations
have considered in the United States for close to 20 years.
It is something that the Trump administration has been talking
about since the very beginning of the administration,
but it kind of fell off the radar.
Donald Trump made it very clear that it was something
he wanted to do, and then was talked out of it internally,
and it wasn't really a part of the early trade discussions
within the administration.
But now a lot of the people who resisted have left
and it looks like other people who have resisted
- people like Steve Mnuchin at Treasury
and Robert Lighthizer at the US Trade Representative's Office
- have given in to this demand.
So, why now?
The problem for the United States Treasury
and for the White House is there aren't
a lot of really good options to do anything
about the value of the yuan versus the dollar,
and here's the reason why.
The dollar is overvalued against a bunch
of different currencies.
The dollar is overvalued in general.
The United States is about 25 per cent of global trade,
but the dollar itself is used, it says, for about 60
per cent of central bank reserves.
It's a comparable percentage.
We think about 50 per cent to 60 pe cent
of the denominations of international trade contracts.
The dollar is used far beyond its value of buying things
that are made in America.
That means that the dollar is going
to be artificially high which means if you make things
in America and you want dollars for them
you're going to have a hard time selling abroad.
This is true all over the world.
It's not just true in China.
And particularly for the last five years or so the Fed,
until very recently, was in a hiking cycle.
It was making it more attractive to move
your capital to the United States and invest.
The European Central Bank and the Bank of Japan
were doing the exact opposite.
There we're sort of discouraging the value of assets.
They were driving down the value of assets,
which again discourages people from buying those currencies.
So if you want to do something about the value of the dollar,
and it's not just Donald Trump who wants to do this.
Elizabeth Warren, running for president,
a Democratic senator, has said as an explicit part
of her campaign plan that she wants
to make sure that the dollar drops
in values against other currencies
to encourage American manufacturing.
So what you have to do is convince the Fed that it's got
to drop way below what's indicated it's preparing
to drop, and then you have to get a bunch of other central
banks - over which you don't even have jawboning control,
you don't even have any modicum of political control -
to do you a favour basically, and raise rates on their own
economy to encourage investment from abroad in their economy.
That all feels unlikely.
And so right now, all the Trump administration really can do
is jawbone.
All it can do is say: we think that the dollar
should be less value.
They can say: we're considering changing
the 20-year-old strong dollar policy.
Now, they haven't explicitly said
they're changing the 20-year-old strong dollar policy the United
States, but they're definitely acting
like they're reconsidering it.
Again, this isn't a unilateral decision.
The Democrats were thinking about this as well.
Chuck Schumer urged the White House
to declare China a currency manipulator.
So all this leads us back to the original question.
Why declare China a currency manipulator now?
Well, the answer is they needed to do something,
and right now it's the only thing they can do.