The decision to drop China’s currency manipulator label marks a reversal from August, when Mnuchin took the rare step of issuing the formal designation against China at a moment when trade relations between the two countries were spiraling downward. That was the first time any administration had taken that step in nearly 30 years.
Treasury defended that decision in its report, saying that Beijing over the summer “took concrete steps to devalue” its currency “to gain unfair competitive advantage in international trade.”
But commitments in the phase one deal, including an agreement to make some information related to exchange rates public, led Treasury to remove the designation, the report says. The deal also promises $200 billion in Chinese purchases over two years.
While text of the agreement has yet to be released, China is expected to agree to institute new currency disciplines as part of it. U.S. officials have said the currency rules will be enforceable, meaning any violations could be punished with tariffs.
The long-delayed report offers the first detailed explanation of Treasury’s decision last year to add the currency manipulator label, which is largely symbolic but viewed as a sort of public shaming. Treasury had been expected to release its biannual report by mid-October, but it was held without explanation until Monday — the same day China’s delegation arrived in Washington in advance of the deal signing.
Previous administrations had refrained from imposing the formal designation, arguing that it was better to work with other countries to put diplomatic pressure on Beijing. President Donald Trump, despite campaign pledges in 2016 to label China a currency manipulator as soon as he entered the White House, had also held off for the first five currency reports issued under his administration.
Mnuchin had suggested in October that the currency manipulator label could be lifted if the U.S. and China sign a deal. “Assuming we close the agreement and we have the assurances,” he said at the time, “that will be a big step in the right direction for our evaluation.”
Still, the currency decision Monday sparked some criticism from lawmakers on both sides of the aisle, who accused Trump of giving in to Chinese President Xi Jinping without getting much in return.
“Unfortunately, President Trump would rather cave to President Xi than stay tough on China,” Senate Minority Leader Chuck Schumer (D-N.Y.) said in a statement. “When it comes to the president’s stance on China, Americans are getting a lot of show and very little results.”
Sen. Rick Scott (R-Fla.) added that “just because we’re negotiating a trade deal doesn’t mean we should ignore Communist China’s bad acts.”
“They are a currency manipulator. Period,” he wrote on Twitter. “They’re also human rights violators and the world biggest polluters. We can’t forget that.”
Treasury did keep China on its “Monitoring List” of trading partners whose currency practices deserve close attention. Nine other countries are also on that list: Germany, Ireland, Italy, Japan, Korea, Malaysia, Singapore, Switzerland and Vietnam.
All of those countries had been on the most recent monitoring list except Switzerland, which was added because of its trade surplus and what Treasury called “persistent, one-sided intervention in the foreign exchange market.”
Brazil and Argentina, two countries that Trump last month accused of manipulating their currencies, notably did not appear on the list.