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The U.S.-China trade deal includes a foreign-exchange agreement that reaffirms the nations’ G-20 commitments to forgo competitive devaluations, while giving Beijing a major concession: removing its tag as a currency manipulator.
The two-page chapter of the accord signed in Washington on Wednesday lays out an enforcement mechanism if either side fails to adhere to International Monetary Fund and Group-of-20 commitments.
The U.S. and China agreed to publicly disclose data including foreign-exchange reserves and figures on imports and exports as proof that neither side is manipulating their currency. But the scope of the accord left some analysts unimpressed.
“It still remains to be seen on enforcement of the exchange-rate component and the deal overall,” said Torsten Slok, chief economist at Deutsche Bank AG. “So we have to stay tuned with regard to the yuan.”
The U.S. Treasury on Monday said China is no longer a currency cheat, a move that’s seen as a win for China. At President Donald Trump’s direction, Treasury Secretary Steven Mnuchin in August made an unusual move to name China a currency manipulator as trade tensions rose, and removed it this week.
A commitment from the Americans to make a public promise to remove that tag at a later date was rejected by the Chinese, according to one person familiar with the matter.
“Currency devaluation will now have some very, very strong restrictions,” Trump said during a press conference announcing the deal. “And one of the strongest things, we have total and full enforceability.”
Optimism ahead of the agreement signing and after Treasury’s removal of China from its currency watch list drove the yuan on Tuesday to its strongest since July. The offshore yuan was little changed as the two sides signed the pact, at 6.888 per dollar, close to its strongest level of the day.
Treasury’s foreign-exchange policy report released Monday said China “needs to take the necessary steps to avoid a persistently weak currency.”
Currency policy has emerged as a tool for Trump to rewrite global trade rules that he says have hurt American businesses and consumers. Foreign-exchange policy is a key piece of trade pacts with Mexico, Canada and South Korea.
The Trump administration has considered measures to counter the dollar’s strength, including direct intervention, though at one point last year officials said that step had been ruled out. Still, Trump has continued to lament the greenback’s strength, which is a drag on U.S. companies’ overseas earnings.
If issues arise and there’s a failure to arrive at a resolution, either side may request the IMF to undertake “rigorous surveillance” of the policies agreed to, or initiate formal consultations and provide input.
(Adds analyst’s comment.)
To contact the reporters on this story: Saleha Mohsin in Washington at smohsin2@bloomberg.net;Liz Capo McCormick in New York at emccormick7@bloomberg.net
To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, ;Alex Wayne at awayne3@bloomberg.net, Mark Tannenbaum
©2020 Bloomberg L.P.
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