WASHINGTON _ During his presidential campaign, Donald Trump said he declare China a currency manipulator on "day one." He hasn't done so yet, but the new administration looks ready to, risking a trade war between the world's two largest economies.
In his confirmation hearing, treasury secretary nominee Steven Mnuchin told senators that China's currency manipulation was "a serious infraction of free trade principles." Trump has appointed several advisers who want to confront China on its trade and currency practices, as does the most powerful Democrat in the Senate, Charles E. Schumer of New York, the minority leader.
Matthew P. Goodman, a former U.S. Treasury economist, said he expects Trump to designate some countries as currency manipulators this year. If China makes the list, it would surely retaliate, and U.S. companies could sustain collateral damage.
"I doubt that China would take kindly to that," said Goodman, a senior adviser on Asian economics at the Center for Strategic and International Studies in Washington. "Countries don't like to be called names, and that is true of China in particular."
Many U.S. industries, like automakers and steel manufacturers, want to pressure China and other Asian countries to open their markets and end trade policies the manufacturers believe are unfair. Yet many economists reject the claim that China is manipulating its currency to depress the price of Chinese exports, as it once did. If the United States were to unnecessarily spark a trade war with China, it could hurt many U.S. companies that export goods to China.
Goodman said it's indisputable that China manipulated its currency until the mid-1990s, mainly by buying U.S. dollars and other foreign currencies, pushing up their value in relation to the Chinese yuan. Goodman was part of a U.S. treasury team that first found that China was a manipulator, a designation that was lifted after 1994.
In more recent years, China has been concerned about Chinese capital leaving the country, a trend that is exacerbated when the yuan sinks in value. To prevent the currency from sinking further, China in 2016 spent $279 billion to buy up Chinese yuan.
In other words, Beijing is doing the opposite of what it was accused of doing in the early 1990s, yet Trump and his advisers have so far not recognized that.
"It's a nonsensical political position," said Rob Carnell, chief international economist at ING, a Dutch multinational finance services corporation. "There are no facts to support it."
Carnell says that for the U.S. Treasury to again designate China as a currency manipulator, it would have to make a three-part finding:
��That China is spending at least 2 percent of its gross domestic product to buy foreign exchange.
��That China had a trade surplus with the U.S. of more than $20 billion.
��That China's "current account surplus" _ an indicator of lending versus borrowing _ was at 3 percent or more.
Currently, Carnell said, China meets only one of those criteria _ having a trade surplus the United States above $20 billion.
Yet Carnell said he's not convinced that the Trump administration feels compelled to follow Treasury procedures before taking actions against China. "In terms of trade, we are in new ground now where anything is possible."
In Trump's campaign "contract" to help American workers, he said, "I will direct the secretary of treasury to label China as a currency manipulator."
Vice President Mike Pence followed that up on Jan. 4. "We are going to be in the promise-keeping business," he said.
Since then, Trump has wavered, telling the Wall Street Journal, "I would talk to them" (Chinese leaders) before seeking sanctions.
One challenge for the president is that the Senate has not yet confirmed Mnuchin, his treasury secretary pick. Democrats want Mnuchin, an former Goldman Sachs banker, to provide more specific answers to many, including how he would deal with China.
Several Democrats and Republicans are putting pressure on Trump to keep his pledge. Schumer, a longtime critic of China's trade policies, said Tuesday: "He's promised to label China a currency manipulator on his first day in office. We're still waiting."
If the Treasury Department begins the process of designating China as a manipulator, there is no telling how China might respond. Beijing has not hesitated in the past to punish foreign governments by targeting their companies operating in China. In 2012, sales of Toyota and Honda cars plummeted in China during a diplomatic dispute with Japan over islands in the East China Sea that both nations claim.
Goodman said that U.S. businesses might suddenly lose deals in China in retribution orchestrated by Beijing. China might also chose to respond more broadly and openly, especially if Trump labeled the country a currency manipulator and also imposed tariffs on Chinese goods, as he has also threatened.
So far, Beijing has responded somewhat moderately, apparently waiting to see if Trump's words will be backed up by actions. "The threat of labeling China a currency manipulator is illogical," Yi Gang, deputy director of the People's Bank of China, was quoted as saying this past week by CPPCC Daily, a state-run newspaper. China "already had thorough communications with the U.S. Treasury Department," Yi said.
At least one organization that represents U.S. companies in China has urged the new administration to consider the potential impacts of a trade war with Beijing. Two weeks ago, the U.S.-China Business Council released a report that said trade with China supports more than 2.5 million U.S. jobs.
"Presenting only the negative impact and ignoring the jobs created, lower inflation and other benefits of trade with China can lead to policies based on incomplete or misleading information," said John Frisbie, president of the USCBC, which represents more than 200 companies operating in China, including Microsoft, Ford and Coca-Cola.
