When it comes to the Chinese yuan, President Trump just seems to get more and more confused.
You may recall that during the 2016 campaign, Trump accused China of currency manipulation. He wasn't wrong then. The Chinese government does deliberately keep the yuan undervalued relative to the U.S. dollar, making their exports cheaper and widening America's trade deficit with China. But once Trump entered office and commenced his trade war, he dropped the subject of China's currency policy. Instead, he focused on changing China's rules around market access, investment, technology transfer, and intellectual property.
Now, the yuan is back: The White House reportedly wants China to commit to keeping the value of the yuan stable as part of the ongoing trade negotiations.
Nothing about this evolution makes a great deal of sense.
Trump was closest to the mark at the beginning. The U.S. dollar's dominant role in international exchange means that any country engaged in trade — including China — needs to maintain some stockpile of the currency. But China's central bank holds around $3 trillion in dollar reserves, and its wealth fund holds another $1.5 trillion in assets, all of which wildly exceeds the amount that's necessary for straightforward trade management. The sheer fact that those stockpiles exist, and are as big as they are, puts continuous upward pressure on the value of the dollar in international exchange markets.
That makes American exports more expensive, and Chinese imports less expensive, which does real damage to U.S. workers in export-heavy industries — which tend to be more working-class and blue collar.
Now, officially accusing China of currency manipulation, through international setups like the World Trade Organization, would be a complicated and fraught business. And there are actually purely domestic policies that could fix the problem, without having to fight with China at all: We could just bulk up domestic demand by doing a lot of deficit-financed industrial policy. (A Green New Deal, anyone?) Or we could get more creative and have institutions like the Federal Reserve stockpile Chinese currency, to neutralize the effect of China's dollar reserves.
Neither of those solutions seem like ones Trump's White House could pull off or is even interested in. But bringing up the subject of China's currency at least showed that the president was in the vicinity of a correct diagnosis.
Then the subject disappeared once Trump went to work.
China's domestic market is something of a Wild West when it comes to intellectual property protections. The government also has a ton of rules that restrict foreign companies (like U.S.-owned ones) from investing or opening up shop in China's domestic market: They usually have to partner with Chinese-owned firms to do so, which usually means sharing technology and trade secrets. Now that Trump's trade war has forced China to the bargaining table, getting its government to reform all those practices is the White House's focus.
The problem there is that, if jobs and wages for American workers are your primary concern, things like investor access to China's market and technology transfer are really neither here nor there. If the White House gets what it wants, those changes would certainly fatten the profit margins of some U.S.-based companies. But there's no reason to think the benefits would trickle down.
Does that mean it's a good thing that Trump is finally talking about China's currency policy again?
The key problem is his demand for "stability."
As I mentioned, the value of the yuan has been chronically too low relative to the U.S. dollar for a while now. Again, if our goal is more American jobs and higher wages, we don't want the yuan to remain stable. We want its value to increase relative to the dollar. Indeed, with the exception of one big drop in value in 2015 and 2016 — which China did for a lot of complicated reasons — the yuan's value hasn't really moved that much in the last few years. Stability is basically what China is already delivering.
Many economists and experts aren’t thrilled with this demand for stability either. But that's largely because they'd like China to allow its currency to "float" on international markets — meaning the value of the yuan could go up or down, depending on how "market forces" act on it. Stability isn't terribly consistent with that goal, either.
As a long-term solution down the road, allowing the yuan to float wouldn't be the worst thing in the world. (Whether China would ever agree to go that far is another question entirely.) At the same time, the idea that there's a self-correcting market in major currencies out there, free from interference by major governments, is more of a hopeful centrist fantasy than a functioning reality.
At any rate, if you follow the Trump administration's own logic, they're basically demanding stability in the yuan to protect their tariffs. Trump slapped those tariffs on China to force it to negotiate. And he wants to use those negotiations to make China's domestic market friendlier to U.S. investors. The White House's concern is that China could neutralize the tariffs by dropping the value of its currencies again. And the stability commitment is meant to prevent that.
In other words, the White House's trade strategy towards China is still captured by the interests of big business. And given Trump's original promise to help "the forgotten men and women" of America, that still doesn't add up.