13 April 2017

During his campaign, Trump repeatedly pledged to label China a currency manipulator on "day one" in office

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

By Gina Chon

WASHINGTON, April 13 (Reuters Breakingviews) - As with healthcare, Donald Trump is finding that markets are complicated, too. The U.S. president no longer wants to label Beijing a currency manipulator. He belatedly learned that the yuan hasn’t been purposely devalued for a while. He's also warming to the dovish Federal Reserve Chair Janet Yellen and the Export-Import Bank.

During his campaign, Trump repeatedly pledged to label China a currency manipulator on “day one” in office. He accused Beijing of purposely weakening the yuan to make Chinese exports more attractive. There are three conditions a country must meet to be labeled a currency manipulator, such as having a trade surplus with the United States and persistently intervening in the foreign-exchange market.

China had been trying to depress its currency for years in the 2000s. However over the last two years, China has been the biggest net seller of foreign-exchange reserves to prop up the currency and stem capital flight. Trump told the Wall Street Journal on Wednesday that China actually hasn’t been manipulating the yuan for months.

He also reversed course on his criticisms of Yellen, whom he said he'd like to replace during the campaign. He said he respects Yellen and given the strong U.S. dollar, he prefers interest rates to stay low. But that clashes with his economic goals. The central bank expects to raise rates more quickly this year because of the healthy economy and jobs growth.

Trump also now supports Ex-Im, the government credit agency for foreign purchases of U.S. goods. He said it helps small businesses and other countries have similar lenders. The bank has been hobbled in its mission by conservative lawmakers, including Trump ally and House Financial Services Committee Chairman Jeb Hensarling, who accuse it of crony capitalism.

As a real-estate mogul, Trump had limited experience with the stock market, currency swings and other market factors. He’s being schooled by Wall Street pros like Blackstone boss Steve Schwarzman and former Goldman Sachs President Gary Cohn, Trump’s director of the National Economic Council.

In February, during the failed effort to repeal Obamacare, Trump said “nobody knew health care could be so complicated." His reversals on the yuan, Yellen and Ex-Im suggest he's coming to similar realizations on matters of import to markets. Even if the inconsistencies are worrisome, at least he seems to be learning on the job.

On Twitter https://twitter.com/GinaChon

CONTEXT NEWS

- President Donald Trump told the Wall Street Journal on April 12 that China hasn’t been manipulating its currency for months and he also doesn’t want to jeopardize his relationship with Beijing, whose help he needs on combating the North Korea threat. The U.S. Treasury Department will not label China a currency manipulator in its latest report on the foreign-exchange practices of major trade partners, which is due April 15. During Trump’s campaign, he repeatedly promised to impose the currency-manipulator label on China on “day one” in office.

- Under the U.S. Trade Facilitation and Trade Enforcement Act of 2015, a country can be labeled a currency manipulator if it meets three criteria. These include having a significant bilateral trade surplus with the United States, having a material current-account surplus, and engaging in persistent, one-sided intervention in the foreign-exchange market. If a country is found to have met those conditions, Washington would start negotiations to reduce those practices. If there is no progress after one year, the United States could impose several penalties such as excluding the country from government procurement contracts and calling for heightened surveillance by the International Monetary Fund.

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(Editing by Rob Cox and Martin Langfield)

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