During last night’s final presidential debate, Mitt Romney once again promised to label China a currency manipulator on his first day in office, should he win the election. “I’ve watched year in and year out as companies have shut down and people have lost their jobs because China has not played by the same rules, in part by holding down artificially the value of their currency,” Romney said. “They’re making some progress; they need to make more. That’s why on day one I will label them a currency manipulator which allows us to apply tariffs where they’re taking jobs.”
President Obama responded by saying, “actually, currencies are at their most advantageous point for U.S. exporters since 1993.” Indeed, as this chart from Quartz’s Tim Fernholz shows, the Chinese yuan has appreciated by a significant amount since Obama came into office:
Fernholz added, “while the extent of Chinese currency manipulation isn’t clear, what is clear is that it’s declining. Even the most commonly cited method of manipulation, purchasing large quantities of US government debt, has been in retreat: US taxpayers owe China 10% less this year than they did last year.” As the New York Times noted today, “A dollar currently buys about 6.25 renminbi, down from about 6.8 when Mr. Obama took office.” And China is not even the world’s worst currency manipulator: Taiwan, Singapore, Japan, and even Switzerland are worse.
Labeling China a currency manipulator would not immediately have any effect in terms of tariffs, but economists warn that it could, at worst, start a trade war. “The economic credibility of that action would be pretty thin,” said Arvind Subramanian of the Peterson Institute of International Economics. “Moreover, it would be blatantly provocative at a time when the new leadership was getting in place in China, and the new administration as well.”