Goldman Sachs isn’t ruling out that the U.S. might label China a currency manipulator in a report due next week.
Though China doesn’t meet the three official criteria, the Treasury Department could still accuse the Asian nation if it found that China was manipulating the yuan for trade purposes, Goldman notes. While not the bank’s base case, given that currency matters have played a “central role” in the U.S.-China trade standoff, a formal declaration isn’t unfathomable.
“Naming China a currency manipulator does not seem like the logical next step at this point,” currency strategist Michael Cahill wrote in an Oct. 10 note. “That said, the administration’s continued focus in this area means we cannot rule it out.”
The yuan has slid more than 10 percent against the dollar in the last six months, raising speculation that China has been deliberately weakening its currency as tensions with the U.S. escalate. The drop has drawn the ire of U.S. President Donald Trump, who accused China and the European Union of manipulating their currencies in a July tweet, saying they were “taking away our big competitive edge.”
A Treasury spokesperson didn’t immediately respond to requests for comment on the Goldman report. A senior Treasury official said Monday that the U.S. is concerned about the yuan’s recent depreciation, while Treasury Secretary Steven Mnuchin told the Financial Times that the U.S. is monitoring currency issues “very carefully.”
Goldman says the more likely scenario would be that Treasury keeps China on the monitoring list, but refrains from a formal accusation. While foreign exchange will remain a central part of trade discussions, Chinese policy makers have taken steps to stabilize the yuan since Trump’s July tweet, Cahill wrote.