Staff from the US Treasury Department have reportedly disclosed to Secretary Steven Mnuchin that the yuan is not being manipulated by China, despite allegations. It remains to be seen if Mnuchin will accept this conclusion and if an escalation of the China-US trade can be avoided as a result.
As the Trump administration prepares to release a report on foreign currencies movement of their trade partners, two people familiar with the issue reported that there already is a conclusion about China's behavior pertaining to the yuan. Contrary to what is speculated, the staff of the US Treasury Department allegedly claimed that these suspicions are unfounded. If Mnuchin accepts this finding, then a source of anxiety for the emerging markets can be removed - that of a more intense trade war between two economic giants, the US and China. Still, Mnuchin can issue a different finding and discount what the staff reportedly disclosed.
There have been reports of President Donald Trump deliberately pressuring Mnuchin to declare China to be guilty of manipulating the yuan. This is allegedly done publicly and privately. However, Treasury staff, who refused to be named, claimed that there is simply no evidence of this. While formally branding or accusing China of being a currency manipulator would not lead to any formal sanctions or even retribution, this can only serve as a trigger for tensions between the two economies to further heighten and escalate, affecting how emerging market economies would behave.
The Treasury Department's report on the foreign currency movements of trade partners, which will contain information about whether the countries are manipulating their currencies will be released next week. China is part of this report because it is a major trading partner of the United States, more so because it has a massive trading surplus.
Asked to comment on the said report last Thursday, Mnuchin only claimed that they were concerned about the depreciation of the yuan and wanted to be sure that there was no deliberate and competitive devaluation happening.
While Mnuchin was concerned, the IMF chief economist, Maurice Obstfeld remained optimistic about the yuan's devaluation. Last Tuesday, on the sidelines of a news conference at the IMF and World Bank's annual meetings held in Bali, he asserted that he was not concerned about the Chinese government's ability to defend the yuan, despite the depreciation.
