SINGAPORE (Nov 19): Will China weaponise the renminbi by allowing it to move above the critical RMB7-to-the US dollar level? It was a keen topic of discussion at the China International Import Expo (CIIE) in Shanghai last week.
A weaker renminbi blunts the effects of US President Donald Trump’s tariff policy, effectively neutralising impact. However, that is likely to further enrage the coterie of anti-China policymakers that surrounds the president. Presidential adviser Robert Lighthizer still fondly remembers his currency victory against the Japanese in the 1980s. The currency adjustments forced on Japan led to the lost generations of growth, but this does not seem to concern the now elderly policy hawk.
Yet, there is another issue around any attempt by China to manage the currency weakness, or defend the 7 peg. Trump and his advisers are itching to label China a currency manipulator because this tag enables a raft of particularly nasty retaliatory actions to be legally implemented. Trump’s petulance, on full display after his recent visit to France, makes defending the 7 peg much more problematic.