The United States stripped away its designation of China as a currency manipulator days before President Donald Trump and senior Chinese officials are expected to sign an initial trade deal.
On Monday, the Treasury Department – in its twice-a-year report to Congress – said it found no major trading partners “at this time” in violation of troubling foreign exchange practices that would trigger the label, including China.
Instead, it placed China along with nine other trading partners like Germany, Italy, Japan, Korea and Vietnam on a monitoring list.
The Treasury Department cited negotiations with the People’s Bank of China along with enforceable agreements part of the preliminary trade deal as reasons for why Beijing should no longer be designated as a currency manipulator.
“China has made enforceable commitments to refrain from competitive devaluation, while promoting transparency and accountability,” said Treasury Secretary Steven Mnuchin in a statement.
The Trump administration’s decision to reverse the label – one that the US imposed only five months ago – comes after the world’s two largest economies finally brokered a partial trade deal late last year after a turbulent fight that roiled financial markets and hurt American farmers and consumers.
As part of the trade deal, which Trump is expected to sign during a White House ceremony on Wednesday, the two countries are expected to agree that they will avoid allowing their currency to depreciate to support any competitive advantage.
So far, no public details around the currency agreement – or the trade deal at large – have been disclosed beyond broad strokes as both countries have been working behind the scenes to complete a legal review and translation.
Craig Allen, president of the US-China Business Council, viewed the move by the Americans as a “confidence-building mechanism” even as further details remain to be seen.
“It’s probably a good move to ratchet down tensions and explore positive developments of the relationship,” said Allen.
Last year, Trump repeatedly argued that the Chinese had depreciated their currency slowly to help offset tariffs on billions of dollars of Chinese goods amid an ongoing trade war between the two major economic superpowers.
In the midst of escalating trade tensions over the summer, Trump directed his Treasury secretary in August to formally label China a currency manipulator after the country’s central bank allowed the yuan to depreciate.
Observers viewed the move by China as a retaliatory measure after the American President threatened to slap a 10% tariff on $300 billion of Chinese goods. It was the first time in a decade that the People’s Bank of China allowed its currency to fall below 7 yuan to the American dollar, considered to be a psychologically important marker.
Presidents have often used the Treasury Department’s twice-a-year currency report as a diplomatic tools while engaging with countries that are seen as having exchange rates that harm US jobs and economic growth.
Until this summer, Treasury had repeatedly declined to label China a currency manipulator, despite Trump’s pledge to do so during his 2016 campaign.
Instead, the country has been placed on Treasury’s “monitoring list” in its review of US trading partners along with eight other countries.
The United States hadn’t labeled a country a currency manipulator since it tagged China in the early 1990s, under President Bill Clinton. Designating a country doesn’t immediately trigger penalties, but it is seen by other governments as a provocation.