Trump’s foreign exchange wobbles risk backlash

Donald Trump’s stunning policy reversal on China’s currency this week shone a light on the administration’s contradictory views on foreign exchange, and risks exposing the president to a political backlash over abandoned campaign promises, analysts say.

The president on Thursday backed away from his signature vow to brand China a currency manipulator, executing a U-turn from one of his most attention-grabbing campaign pledges.

It was one of a number of volte-faces this week, including a declaration that Nato is no longer “obsolete” and warmer words for Janet Yellen, the Federal Reserve chair, that appeared to leave open the option of reappointing her next year. 

By ditching the China pledge, Mr Trump helped ease bilateral tensions with Beijing, but also invited accusations that the president is going soft on his vows to clamp down on perceived unfair trade practices.

China has hailed the decision, saying it would promote “more balanced growth” in bilateral trade. “We do not intend to spur export growth through competitive depreciation, and the renminbi has no basis for continuous depreciation,” foreign ministry spokesman Lu Kang said on Thursday.

As recently as February, Mr Trump labelled Beijing a “grand champion” of currency manipulation and promised tough action, while his administration has urged the International Monetary Fund to take a tougher line with Beijing over currency.

“The president made a big mistake,” said Scott Paul, head of the Alliance for American Manufacturing, which represents steelworkers and manufacturers.

“He gave up a significant point of leverage and broke a campaign promise. He campaigned on the premise that he was going to look out for the forgotten man and woman and that their interests wouldn’t be sacrificed at the altar of international diplomacy. But that appears to be exactly what is happening here.”

Trump’s brand of economic nationalism has led him to make wild promises that he can’t keep

The China move opened the door to some Democrats, who had already begun to see Mr Trump’s softening on Beijing as an opportunity to reclaim the anti-trade message that was so crucial to his victory in November in industrial states such as Ohio.

Chuck Schumer, the top Democrat in the Senate, this week said that the opposition party was assembling a trade package designed to get tough on China in order to force the president’s hand.

“Trump’s brand of economic nationalism has led him to make wild promises that he can’t keep,” said Sandy Levin, who as a longtime congressman from the home of the US motor industry in Michigan has been calling for tougher US currency policies since the 1980s when the Japanese yen was the main concern. 

Specialists in international economics welcomed the decision, saying that it recognised the reality in foreign exchange markets, given that Beijing has been intervening to hold up the value of the currency, not to drive it down.

The move leaves the door open to tough language in a forthcoming Treasury report on foreign exchange practices around the world, while defusing some of the tensions that have surrounded the China-US relationship. 

However, in the same interview with the Wall Street Journal in which he backed away from calling China a currency manipulator, Mr Trump renewed his complaints about the high value of the dollar, in words that will trigger concern in some overseas capitals.

His declaration that the US currency was “getting too strong” clashed with recent messages from his Treasury secretary, Steven Mnuchin, who has stuck more closely to the traditional US rhetoric in favour of a strong dollar.

If Mr Trump persists with his willingness to verbally intervene about the high dollar, he will complicate relations with foreign partners over the longer run, analysts said.

Brad Setser, a senior fellow at the Council on Foreign Relations, said foreign governments would be relieved that Mr Trump had changed his approach on China. He said that explicit comments from a US president on the dollar’s direction and valuation are indicative of “a new era”.

“It is a change and it conceivably could become an additional complicating factor in some countries’ relations with the Trump administration.”

Additional reporting by Lucy Hornby in Beijing