American protectionists have long insisted that a fundamentally undervalued yuan is to blame for the large U.S. bilateral trade deficit with China. They call on the U.S. Treasury to declare Beijing a “currency manipulator” and impose punitive tariffs. The Obama Administration has resisted this step, but it also has pressured China to allow the market to determine the yuan’s value in the expectation it would rise more quickly against the dollar.
So it’s worth savoring the irony that Beijing is intervening again in the currency market—this time to keep the yuan from falling. The currency has bumped along the bottom of its trading band for months, forcing the central bank to sell dollars and buy yuan to slow its decline.
The yuan’s fall of 3.2% against the dollar since January 2014 should lead protectionists to reassess whether it was ever as undervalued as they claimed. But instead many in the U.S. Congress seem to be doubling down. A bipartisan coalition wants tougher measures on “currency manipulators”—read China—before they will approve the Trade Promotion Authority needed for the Trans-Pacific Partnership trade pact.
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