U.S., China Trade Deal Leaves Currencies as Fighting Ground

Wednesday,   06-Mar-2019   02:05 PM (IST)

The U.S. and China are edging closer to resolving differences on currencies that have bogged down economic talks for nearly two decades. The only question is how meaningful the deal will be. With both nations inching towards a trade agreement that’s expected to include a provision for China to hold the yuan stable, U.S. President Donald Trump is shifting his gaze to the dollar’s strength. During a largely unscripted two-hour speech on Saturday, he targeted Federal Reserve Chairman Jerome Powell as someone who “likes raising rates.” Even though his Treasury secretary sets currency policy, Trump pointed to Powell as a “gentleman that likes a very strong dollar.” For China, a possible weaker dollar will lead to a stronger yuan, pressuring officials to halt its appreciation as the economy slows. That will risk triggering blunt criticism from Trump, who used his presidential election campaign to routinely accuse China of deliberately weakening its currency in order to boost exports. The government in Beijing on Tuesday used its report to the annual National People’s Congress to lower its growth goal for the year to a target of 6 percent to 6.5 percent and pledged to keep the yuan basically stable at reasonable equilibrium levels, while also allowing greater flexibility. That suits China’s own interests, given the risk of capital outflows and market instability that would be triggered by a currency slump. Yet it’s less clear how much sovereignty over the yuan China will want to cede in any trade agreement with the U.S.