February 24, 2017 – President Trump has openly criticized China for manipulating its currency. He spoke loudly about this issue during his campaign and promised to declare China the biggest currency manipulator in the world when he becomes the president. Trump has so far fulfilled many of the promises and now he is turning his guns towards China. In an interview with Reuters, President Trump called China the great-champion of currency manipulation; however, this is not the first time for Trump to accuse China of manipulating its currency. He has talked about this issue on several occasions before and after he became the president.
Today, a spokesperson for the government denied Trump’s allegations and said that the Chinese government has no interest in devaluation of its currency to gain advantage in trading between the two countries. China is in denial, but the facts are telling a whole different story. For instance, Yuan fell more than 6% last year against USD. China’s official currency is Renminbi [RMB,] whose basic unit is called Yuan.
For China, it makes sense to keep its currency weaker against US Dollar, British Pound, and other major currencies. This is because China is a major exporter; in fact, it is the number one exporter in the world making nearly $2 Trillion revenue in a year from exports! When the currency in any country is weak, then exporters are very happy because they get paid in Foreign currency and when they exchange it for the local currency, they get more money. Another advantage of this weak currency policy is that it boosts exports because for importers in USA and other countries, the products are cheaper.
In the Thursday’s interview, Trump reasserted the fact that USA is losing thousands of jobs because of China’s interference in the Foreign Exchange market. The logic behind this assumption is simple and to some extent, correct too. The small consumer products made in USA cannot compete with the ones that are imported from China because of the cost difference. Chinese retailers are selling items for cheap. Most of these items manufacturers have low quality standards, but the customers are still buying them. Because of the lesser quality and lower exchange rates, the Chinese exporters are enjoying all the benefits of trading between USA and China.
President Trump has emphasized on creating more jobs in USA and one of the ways he plans to do that is by boosting exports and product production in the country. He wants USA to rely less on exports. Off course, he cannot succeed in his plans if Chinese manufacturers are offering the same products for less price. To tackle this issue, Trump is planning to impose border-tax on imports and he is going to give [tax] relief to manufacturers in USA.