Trump May Have Wrong Asian Currency in His Crosshairs

14-Dec-2016 Intellasia | Bloomberg | 6:00 AM Print This Post

“The case for naming Taiwan a currency manipulator is far stronger than the case for naming China,” said Brad Setser, a senior fellow at the Council on Foreign Relations in New York and a former Treasury Department official.

In its October foreign exchange report, the outgoing Obama administration gave both Taiwan and China a pass by not naming either a currency manipulator.

The president-elect flouted almost four decades of diplomatic protocol this month by directly speaking with the leader of Taiwan, drawing a rebuke from Beijing. The dispute escalated this week, with Trump saying he wouldn’t allow China to dictate to whom he could talk and Beijing warning him that Taiwan was irrevocably a part of China.

The Taiwanese dollar is undervalued by more than 25 percent against the currencies of its trading partners, giving its exporters a huge competitive edge, according to calculations by William Cline, a senior fellow at the Peterson Institute for International Economics in Washington. China’s yuan, in contrast, is more or less fairly valued by his reckoning, which takes account of current and prospective trade flows.

What’s more, China lately has been acting to limit the depreciation of its currency even though a weaker renminbi would give it a leg up in world markets. Those efforts have shown up in steady erosion in its foreign currency reserves as it has sold dollars to prevent what it fears would be an economically-destabilising free-fall of the yuan.

Taiwan’s reserves, meanwhile, have been gently rising, suggesting that on net it’s been acting to constrain an appreciation of its currency, according to Setser of the Council on Foreign Relations.

There certainly was a strong case for branding China a currency manipulator earlier this decade as its trade surplus and foreign currency reserves ballooned. But economists say that those days are long gone.

Now Taiwan seems more suited to sporting that moniker. Maybe that’s something that Trump can mention the next time he talks with the island’s leader.


Category: FinanceAsia

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