U.S.-China Trade Pact Takes Aim at Currency Manipulation
Deal could include penalties for China if it manipulates its currency to increase exports
WASHINGTON—As part of a prospective deal on trade, the U.S. and China have agreed to measures that American officials say will deter Beijing from currency manipulation by requiring greater disclosure of economic actions, according to current and former officials familiar with the negotiations.
The deal could also include penalties for China if it manipulates its currency to increase exports, which is in violation of international guidelines, these people say.
“The fundamental issue on currency across the board is we want to make sure people meet their obligations, that they don’t devalue their currency for competitive purposes,” Treasury Secretary Steven Mnuchin said in an interview. “That’s the objective.”
The trade deal is still under negotiation and American officials caution that nothing will be final until both sides agree on all points.
Even so, an enforceable currency measure “would be significant and would represent a further step forward into bringing discipline to the currency-manipulation issue,” said Fred Bergsten, a former top Treasury Department official and co-founder of the Peterson Institute for International Economics.
The measures for greater economic disclosure are aimed at spotlighting monetary policies that fit the pattern of currency manipulation. Beijing doesn’t disclose the composition of its foreign-exchange reserves—which at $3 trillion as of last month are the world’s largest—or its purchases in currency markets. That makes it difficult to assess whether Beijing is manipulating the yuan.
China’s central bank governor, Yi Gang, indicated at a news conference last month that better disclosure of the central bank’s forex operations would be part of the deal.
The currency provisions and the overall deal’s enforcement system have already been hammered out as a part of the sprawling U.S.-China trade agreement, a work-in-progress that is meant to end the dispute, U.S. officials say.
Treasury officials declined to provide more information on the currency enforcement rules and a spokeswoman for U.S. Trade Representative Robert Lighthizer declined to comment. A spokesman for the Chinese embassy in Washington didn’t immediately respond to a request for comment.
A senior Treasury official said the U.S.-China agreement on currency has similarities to the North American Free Trade Agreement revamp that the Trump administration signed last year with Canada and Mexico. The forex deal also has “certain aspects that go beyond” the new, unratified Nafta deal, known as the U.S.-Mexico-Canada Agreement, or USMCA.
Economists and politicians in recent years have grown more worried about countries manipulating their currencies to favor exports over imports, effectively reducing or eliminating the gains that companies operating in one currency get from lower tariffs negotiated in trade agreements.
Such currency manipulation isn’t allowed under the guidelines of international organizations—including the Group of 20 leading global economies—but these organizations don’t have enforcement mechanisms to hold countries to account.
Major economies and their central banks have been reluctant to tie their own hands when it comes to monetary tools, seeing it as a key part of economic sovereignty.
In 2016, President Trump said he would formally declare China a currency manipulator when he took office, but his administration backed down on that promise. Administration officials say China hasn’t intervened recently to cheapen its currency but could do so in the future.
Many U.S. lawmakers and some exporting industries have long pressed for currency rules in trade agreements. The Obama administration in 2015 spearheaded a nonbinding currency understanding among the U.S. and 11 Pacific countries included in the Trans-Pacific Partnership. But Mr. Trump withdrew from that agreement.
Then last year, the Trump administration included an currency portion in the USMCA, which awaits Congressional approval. The USMCA language was seen as a deterrent to manipulation. Still, only a section on transparency will be enforceable if the new North American deal enters into force, economists say.
Some expect the China pact to go further on enforcement than just requiring transparency, with penalties for violating international economic principles in ways that cheapen a national currency.
Mr. Bertsten said there is a “possibility that the enforcement mechanism may have broader coverage, which would be significant and would represent a further step forward into bringing discipline to the currency-manipulation issue.”
Mr. Bergsten said the U.S. and China would likely solve currency disputes in similar fashion to strictly trade-related issues, perhaps with sets of consultations among economic or Treasury officials from the two nations, with tariffs and perhaps other sanctions allowed as penalties.
As a so-called executive agreement that wouldn’t be submitted to Congress for ratification, the U.S.-China deal wouldn’t have the same legal structure as a free-trade agreement. Some members of Congress worry the pact could improperly change U.S. trade policies without their approval.