Trump's Right, China Is A Currency Manipulator - But They're Manipulating The Yuan Up

Donald Trump has been telling us all for a long time now that China is a currency manipulator. It’s part of his plan for his first 100 days in office to get on with making sure that China is legally declared to be such a currency manipulator and thus start the process of doing something about it. The problem with this is that China really is a currency manipulator. But they’re manipulating the value of the yuan up, not down. Thus returning it to the correct free market value isn’t going to have the desired effect of closing America’s trade deficit with China.

Which is something of a problem:

While Beijing has been busily damming up official channels for money to leave China, more than ever is leaking out through shady means as investors flee the country’s slowing economy and weakening currency

China’s official foreign exchange reserves fell more than half a trillion dollars last year and are still falling, with a loss of nearly $46 billion in October alone, and the International Institute of Finance think-tank estimates outflows doubled in the September quarter to more than $200 billion.

To stem the flows, Beijing has frozen or restricted its main schemes allowing wealthy individuals (QDLP) and financial institutions (QDII) to invest overseas, and lawyers have noted a sharp slowdown in the approval process for large overseas direct investment (ODI) deals.

Recall what the basic accusation is. China deliberately manipulates the value of the yuan down. This makes American exports to China more expensive and makes China’s imports to America cheaper. Myself I think that’s just great–consumption is the name of the game and this makes American consumption of Chinese goods cheaper. However, large numbers of people don’t see trade in quite the same way that I do. Thus they get rather unhappy about this sort of manipulation.

It’s also true that this sort of manipulation almost certainly did occur in the past. But the point is that it isn’t now. China does have restrictions on who may exchange money and how. And those restrictions are currently being used to stop people moving capital out of China. That means that the exchange rate is stronger than it would be without those regulations. There’s manipulation, yes, but in the opposite direction to that being complained about.

The truth about this China currency manipulation story is that it’s an historical one. It did happen and, in the manner being complained about, it isn’t happening now. In essence, people are complaining about it simply because they’ve got used to complaining about it, not because it’s a relevant issue any more. Quite frankly we could all make more productive use of our time going and dealing with some other problem.