The US has stopped classifying China as a currency manipulator as they prepare to sign a long-awaited trade deal.
As senior Chinese officials arrived in Washington on Monday to sign the “phase one” agreement, US trade secretary Steve Mnuchin announced a significant concession to Beijing, reversing a decision made on Donald Trump’s orders in August.
The US president has railed against China for years, claiming it artificially lowers the value of the renminbi to make its exports cheaper, harming American industry in the process. Beijing has consistently denied the charge.
“China has made enforceable commitments to refrain from competitive devaluation, while promoting transparency and accountability,” Mr Mnuchin said in a statement.
The US Treasury said the renminbi had increased in value since the currency manipulator label was applied.
“In this context, Treasury has determined that China should no longer be designated as a currency manipulator at this time,” the department said.
The deal signing on Wednesday by the two countries with the world’s largest economies is being viewed as a precursor to future negotiations that will deal with more complicated trade issues.
Signs that a damaging trade dispute is easing gave markets a dose of optimism on Tuesday, with Asian shares following Wall Street boosts. Indexes in Japan, Australia and South Korea all posted gains.
The “currency manipulator” designation came at the height of the US-China trade war, with Washington accusing Beijing of attempting to gain an “unfair competitive advantage” for its goods.
China rejected the allegations, suspended purchases of American agricultural products and vowed to retaliate with 10 per cent tariffs on $300bn (£230bn) of imports from the US.
Beijing said it had allowed its currency to fall against the dollar to mitigate anticipated damage to its economy from new US tariffs. A devalued renminbi would make Chinese goods cheaper in other markets, partially compensating for lost exports to America.
A weaker renminbi was one of a number of unintended consequences of Mr Trump’s trade policy. The president’s protectionist agenda is aimed at supporting American regions that have suffered job losses and economic decline as a result of globalisation and deindustrialisation, but has in fact hurt some of those same regions.
Last week, a study concluded that tariffs imposed by Mr Trump and his Chinese counterpart Xi Jinping have hit firms in their own countries almost as much as the ones they were aiming at. Academics scrutinised stock market responses to gain a real-time assessment of the impact of the trade war.
Since February 2018, the US has slapped tariffs on $550bn (£420bn) worth of Chinese products. China, in turn, has set tariffs on $185bn (£140bn) worth of US goods.
Peter Egger, a professor at ETH-Zurich university, and Jiaqing Zhu at Guangdong University of Foreign Studies, found that while the trade war tariffs of the US and China directly hurt targeted firms and sectors abroad, they indirectly affected stock prices through global value chain linkages in the US, China, and in economies that weren’t directly participating in the trade war.