Since 2010, China’s exports of goods and services have exceeded those of the US and the gap continues to widen. In 2024, the US trade deficit with China in goods was US$295 billion (the U.S. imported $439 billion in goods from China, and it exported $144 billion there).
A weak Yuan makes China’s exports cheaper for its US customers, while making US imports dearer at home. Trump asserts that this is done on purpose and amount to currency manipulation by China.
Unlike the USD or Greenback which fluctuates in value, the value of the Yuan against USD is carefully monitored and controlled by the Peoples Bank of China (PBOC), its central bank.
Eg if the Yuan strengthens against Greenback, the PBOC would sell its own currency to buy USD. China has forex reserves of around US$3 trillion currently which gives it plenty of ammunition to manage its currency value.
On the other hand, China doesn’t let the outside world do the same to its currency. China has capital controls that make it hard to move money in and out of China, i.e. the private market cannot swamp what the PBOC is trying to do.
Chinese citizens cannot buy more than US50,000 each year. Furthermore they are not allowed to use this money to purchase foreign assets. Therefore it’s not easy for Chinese money to leave China.
At the same time, it’s not easy for foreigners to the flood in and buy assets in China. The entire system may not be airtight but it achieves what China wants it to do, meaning that China pretty much has full control over its currency.
But does China actually manipulate its currency?
In 1993-94 the Yuan weakened substantially against the USD and held steady around RMB8:USD1 level for a decade thereafter. It’s likely that the Yuan was deliberately kept weak to fuel the export boom.
From 2018 when the first Trump administration imposed tariffs on China, the Yuan weakened from around RMB6.3 to RMB7 to USD1.00
At todays rate of RMB 7.3, theYuan has actually strengthened against USD from 20 years ago when it was closer to RMB9.
There is more money wanting to exit China today than there is wanting to enter. If capital controls were removed, the Yuan would probably fall against USD. This does not gel with the assertions that China artificially depresses its own currency.
If “manipulation” is defined as “intervening/managing”, then China is always doing it. A Fixed Exchange Rate is by definition Currency Manipulation. The question is whether the Fixed Exchange Rate undervalues or overvalues the currency.
However apart from the US, no other country has a framework of labelling countries as a Currency Manipulator. No other country really cares like how the US does.
Source: YouTube CBC News