US seeking stable yuan as China trade talks progress

Bloomberg

The US is asking China to keep the value of the yuan stable as part of trade negotiations between the world’s two largest economies, a move aimed at neutralising any effort by Beijing to devalue its currency to counter American tariffs, people familiar with the ongoing talks said.
Officials from the two countries are discussing how to address currency policy in a “Memorandum of Understanding” that would form the basis of a deal that ultimately will have to be approved by President Donald Trump and his Chinese counterpart Xi Jinping, according to several people involved in and briefed on the discussions.
While the precise wording remains unresolved, a pledge of yuan stability has been discussed in multiple rounds of talks in recent months and both sides have tentatively agreed it will be part of the framework of any final deal. Negotiations resume on Tuesday in Washington and are scheduled to continue through Friday as a March 1 deadline for higher US tariffs approaches.
A spokesman for the US Trade Representative’s office, which is leading talks for the White House, didn’t immediately respond to a request for comment.
China’s currency climbed to its highest level in two weeks, strengthening 0.5 percent to 6.7270 per dollar as of 10:28 a.m. local time. The Australian dollar — whose economy is closely linked to China’s — earlier climbed 0.6 percent against the greenback.

Tariff tool
A key enforcement tool would be US tariffs. The Trump administration has been clear in its talks with Beijing that any attempt to depreciate the yuan — a strategy aimed at offsetting existing US duties on Chinese imports — would be met with more or higher American tariffs, according to two of the people briefed on the discussions.

Political Target
China’s foreign-exchange intervention has long been a political target in the US and Trump vowed to declare China a currency manipulator during his 2016 campaign. After two years in office, his Treasury Secretary Steven Mnuchin hasn’t found grounds to do so but has continued to monitor the yuan closely.
The US has also increasingly insisted on currency provisions in trade agreements. The renegotiated Nafta now awaiting approval from Congress requires the US, Canada and Mexico not to engage in currency devaluations for competitive advantage. The Obama administration persuaded Japan and other counties to make a similar pledge as part of its negotiations for the Trans-Pacific Partnership (TPP).
A yuan deal with China is likely to be important for Trump’s domestic politics, too. Senate Minority Leader Chuck Schumer has been a long-standing advocate of using trade sanctions to respond to alleged Chinese currency manipulation.