China’s currency dropped against the dollar to its lowest level in a decade, prompting President Donald Trump on Monday to accuse China of manipulating its currency.
“China dropped the price of their currency to an almost a historic low,” Trump said in a tweet. “It’s called ‘currency manipulation.’ Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!”:
China dropped the price of their currency to an almost a historic low. It’s called “currency manipulation.” Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!
— Donald J. Trump (@realDonaldTrump) August 5, 2019
Unlike the United States, which allows its currency to float upward or downward based on market forces, the Chinese government extensively intervenes in the currency market to move the yuan in directions favored by its leaders. During the weekend, the government allowed it to fall to its lowest level in a decade. Currency depreciation makes Chinese exports cheaper abroad so it can undermine the effects of tariffs.
China’s depreciation follows President Trump’s announcement on Thursday that the U.S. would impose a ten percent tariff on the $300 billion or so of Chinese goods exported to the U.S. that are not subject to the 25 percent tariff.
In a statement, the People’s Bank of China, China’s version of the Fed, denied intentionally depressing the currency. It said China will “not engage in competitive devaluation, and not use the exchange rate for competitive purposes and not use the exchange rate as a tool to deal with external disturbances such as trade disputes.”