U.S. Warns China on Weakening Currency as Trade Relations Worsen

WASHINGTON — The United States is warning China to refrain from weakening its currency as a way to lessen the pain of President Donald Trump’s tariffs, with top U.S. officials suggesting that any trade deal between the two countries should contain measures to prevent manipulation of the renminbi.

The renminbi has fallen 6 percent against the dollar this year, raising concern that the Chinese government is intervening to help make its exports cheaper in the face of Trump’s tariffs on $250 billion worth of Chinese goods.

The levies, which range from 10 percent to 25 percent, are making many Chinese products more expensive to sell into the United States. By lowering the value of its currency, China is making a U.S. dollar worth more, lessening that financial hit.

Steven Mnuchin, the Treasury secretary, said Friday that he voiced his concerns about the weakening renminbi directly to Yi Gang, the governor of the People’s Bank of China, at the World Bank and International Monetary Fund meetings in Indonesia this week. He described the discussion as “constructive.”

The currency concerns are the latest wrinkle in increasingly strained relations between Washington and Beijing. They come as Trump is considering a meeting with Xi Jinping, China’s president, at the Group of 20 summit meeting in Argentina next month in hopes that the two leaders can defuse the escalating trade war and reach agreement on some sort of trade deal.

“We’re going to make sure currency is definitely part of these discussions," Mnuchin said in an interview with CNBC. “We want to make sure that whatever we make up on trade, we don’t lose on currencies.”

He added that he wants a future trade agreement to include a currency provision similar to what was included in the United States-Mexico-Canada Agreement. That deal, which revised the North American Free Trade Agreement, included a commitment by the three countries to avoid manipulating exchange rates and greater transparency in reporting data on international reserve balances.

Mnuchin acknowledged that trade negotiations with China had taken a step backward in recent months, but insisted that his Chinese counterparts understood what concessions and changes the United States was seeking. Mnuchin signaled that a meeting with Trump and Xi would only take place if there were signs that talks between the two nations were making headway.

“We’ll see if we make progress, if that makes sense,” he said.

For months, U.S. and Chinese officials have been holding back-channel discussions to try to break the trade stalemate. Formal, high-level talks have been scarce, however, as Trump has moved forward with tariffs on $250 billion of Chinese imports and Chinese leaders have insisted that they will not make a deal under duress. A Chinese delegation canceled a visit to Washington last month after the United States announced more tariffs and Trump responded by threatening to levy taxes on all Chinese imports.

Trump has said several times that while China “wants to make a deal,” he does not believe it is ready to do so.

As the trade war rages, administration officials have been increasingly wary that China is using alternate measures like currency manipulation to mitigate the effect of the tariffs.

The issue has re-emerged ahead of the Treasury Department’s widely anticipated biannual currency report that is expected next week. The study is the latest opportunity for Trump to make good on his campaign promise to label China a currency manipulator. But, despite those threats, the Treasury has so far declined to name China a manipulator in the three previous reports that have been released under the president’s watch.

In part, that is because China has not yet satisfied some of the criteria required to be labeled a currency manipulator, including bilateral trade deficits and other factors indicating a country is depressing the value of its currency. The United States has not officially called another country a manipulator since it slapped the label on China in 1994, and doing so is supposed to kick-start negotiations to resolve the problem.

While the practical effect is minimal, brandishing the label in the coming report would only exacerbate tension between the two countries. Analysts do not expect the label to be applied in next week’s report.

Mnuchin declined Friday to offer a preview of the Treasury’s findings.

“What we go through on the report is a technical analysis that follows certain rules,” he said. “I’m not going to say what the result is, but this is a very thorough analysis.”

Christine Lagarde, the managing director of the International Monetary Fund, said this week that the strength of the dollar was exacerbating the appearance of the renminbi’s weakness, but that, compared with other currencies, its value was declining only modestly.

The Chinese economy has shown signs of slowing under the weight of Trump’s tariffs, while markets in the United States have been roiled recently in part because of lingering uncertainty about trade.

After prior rounds of trade talks failed, some White House officials appear eager to let Trump and Xi cut a deal on their own.

“We need those two guys to sit down and work it out,” Kevin Hassett, the chairman of the White House’s Council of Economic Advisers, told the Fox Business Network on Friday. “I think that the fact that they’re talking suggests that there should be a great of hope that we can resolve our feud sometime soon.”