The Trump administration is dropping its designation of China as a currency manipulator in advance of the signing on Wednesday of a Phase 1 US-China trade agreement.
The preliminary pact that the two sides are set to sign includes a section that's intended to prevent China from manipulating its currency to gain trade advantages.
The action announced on Monday comes five months after the Trump administration had branded China a currency manipulator - the first time that any country had been so named since 1994 during the Clinton administration.
Even while removing China from its currency black list, the Treasury Department does name China as one of 10 countries it says require placement on a watch list that will mean their currency practices will be closely monitored. In addition to China, the countries on that monitoring list are Germany, Ireland, Italy, Japan, South Korea, Malaysia, Singapore, Switzerland and Vietnam.
Treasury Secretary Steven Mnuchin said the administration had dropped China's designation as a currency manipulator because of commitments in the Phase 1 trade agreement that President Donald Trump is to sign with China on Wednesday at the White House.
"China has made enforceable commitments to refrain from competitive devaluation, while promoting transparency and accountability," Mnuchin said in a statement accompanying the current report.
The Treasury Department is required to report to Congress twice a year in April and October on whether any countries are manipulating their currencies to gain unfair trade advantages against US businesses and workers.
The new report is technically three months late, apparently because the Trump administration had delayed its release until it had achieved the currency Phase 1 commitments from China.
The initial decision to brand China as a manipulator had come in a surprise announcement in August which reversed a Treasury finding in May that no country was manipulating its currency. The United States had not put any country on the manipulation blacklist since the Clinton administration branded China a manipulator 26 years ago.
The designation is largely symbolic. It requires the United States to enter into negotiations to resolve the currency problem and could ultimately lead to the imposition of economic sanctions such as higher tariffs on Chinese goods, something the Trump administration was already doing in its tit-for-tat trade war with China.
China to pump up US car, aircraft, energy purchases
China has pledged to buy nearly an additional $80 billion of manufactured goods from the US over the next two years, plus just over $50 billion more in energy supplies, under a trade deal with China, a source briefed on the agreement said.
Beijing would also boost purchases of US services by about $35 billion over the same two-year period, the source said, aiding a sector that enjoys a rare trade surplus with China.
The Phase 1 agreement calls for Chinese purchases of US agricultural goods to increase by some $32 billion over two years, or roughly $16 billion a year, the source said.
When combined with the $24 billion US agricultural export baseline in 2017, the total gets close to the $40 billion annual goal touted by Trump.
Yuan hits 6-month peak
The yuan raced to its strongest since July on Tuesday, after the US Treasury Department withdrew its designation of China as a currency manipulator.
The onshore yuan reacted by climbing 0.38 per cent to 6.8661 per dollar, its firmest since July 11, 2019, leading a rally across Asian currency and equity markets.
The offshore yuan climbed to a five-month top of 6.8662 per dollar, extending almost 0.5 per cent gains in the previous session. It was last trading at 6.8750.
In early news of the deal, a source said on Tuesday China has pledged to buy nearly an additional $80 billion of manufactured goods from the United States over the next two years, plus just over $50 billion more in energy supplies.
The Chinese currency is up 1.3 per cent so far this month amid easing trade tensions, having suffered two years of losses, and could be in for further strengthening as attractive valuations for Chinese assets boost global demand for the tightly-managed yuan.
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