Business Trade conflict with China: US government withdraws accusation of...

Trade conflict with China: US government withdraws accusation of currency manipulation

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Shortly before the planned signing of a first trade agreement between the US and China, the US government has withdrawn its accusation of currency manipulation.

China has made a verifiable commitment to stop using the local currency, the yuan, to take advantage of international competition, according to a report by the US Treasury Department. With the new trade agreement, Beijing is also committed to more transparency regarding exchange rates and trade balance data. China is now one of ten countries whose actions continue to be critically observed – Germany is also on this list.

The US government has accused China of devaluing the yuan in order to strengthen the export economy. Beijing has always rejected the allegation. The conflict had escalated in August of last year due to the trade conflict between the two largest economies. After a surprising devaluation of the Yuan, US President Donald Trump accused China of currency manipulation. According to the US government, Beijing wanted to offset the negative effects of US punitive tariffs and help exporters with the devaluation.

A lower exchange rate to the dollar reduces the price of Chinese products abroad. The yuan rate is not entirely free according to market forces, but is controlled within limits by the Chinese central bank. With every market movement, this raises the question of the extent to which the price movement came about through the market participants or through the central bank.

The official US accusation of currency manipulation was primarily symbolic. Its abolition also has hardly any practical consequences at first, but suggests thaws in the relations between Beijing and Washington. On Wednesday, almost two years after the start of the trade war, the two countries wanted to conclude a first and content-limited trade agreement. Trump and senior Beijing officials, among others, should attend the ceremony at the White House. With the agreement, both countries are also reportedly committed to foregoing targeted devaluations to achieve competitive advantages.

In the report to Congress, the US Treasury again criticized Germany for its continued large trade surplus. Germany needs to cut its high labor costs and VAT, boost household purchasing power, and implement reforms to boost investment and consumption in the country, the report said. Stronger domestic growth would lead to a more balanced trade balance, it said. The Federal Treasury described the federal government's budgetary policy as "excessively" economical. Germany should use its financial leeway to boost domestic demand, the report said.

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