The US and China are edging closer to resolving differences on currencies that have bogged down economic talks for nearly two decades.
The only question is how meaningful the deal will be. With both nations inching towards a trade agreement that’s expected to include a provision for China to hold the yuan stable, US President Donald Trump is shifting his gaze to the dollar’s strength.
During a largely unscripted speech on Saturday, he targeted Federal Reserve Chairman Jerome Powell. Even though his Treasury secretary sets currency policy, Trump pointed to Powell as a “gentleman that likes a very strong dollar.” For China, a possible weaker dollar will lead to a stronger yuan, pressuring officials to halt its appreciation as the economy slows. That will risk triggering blunt criticism from Trump, who used his presidential election campaign to routinely accuse China of deliberately weakening its currency in order to boost exports.
“Trump wants the dollar to stay lower because of the impending election to counter the strengthening effects of his budget and Fed policy,” said Douglas Paal, vice president for studies at the Carnegie Endowment for International Peace. “But if you were to ask him why, he might offer the excuse of China’s currency.”