(Bloomberg) -- U.S.-China relations are headed for a “wild ride” if President-elect Donald Trump fulfills a campaign promise to designate China as a currency manipulator and the Republican-led Congress imposes trade sanctions, said Jon Huntsman, who served as U.S. ambassador in Beijing under President Barack Obama.
“China would then retaliate, of course,” Huntsman, a Republican who ran for president in 2012, told Bloomberg's “Benchmark” podcast co-hosts Scott Lanman and Daniel Moss on Monday in Washington. “Then you'd see a spiraling out of control of the bilateral trade and economic relationship.”
To listen to the podcast featuring Huntsman, click here.
Huntsman said he expects Trump to move forward with the exchange-rate designation, but said the billionaire real-estate developer might prove more practical once in office.
“Once you're president you have to take a look at the facts and base policy on that,” he said on the weekly global economics podcast. “You might have a different outcome.”
China angered U.S. officials for years during the growth of its manufacturing sector by holding down the value of its currency, the yuan, to make its exports more competitive. In recent years, however, as the country has shifted to consumer-driven growth, Beijing has spent part of its foreign reserves to support the currency. That has aided U.S. exports to China, undermined Chinese shipments abroad and helped prevent a faster depreciation of the yuan that could unsettle global financial markets.
During the campaign, Trump not only failed to acknowledge that shift, but repeatedly accused China of manipulating its currency to the U.S.'s detriment.
“I am going to instruct my Treasury secretary to label China a currency manipulator and to apply tariffs over any country that devalues its currency to gain an unfair advantage over the United States,” he said in an economic policy speech in September.
Read more here about how a Trump-China trade war could play out.
Under a 1988 law, the Treasury is required to assess whether major trading partners game their currencies to prevent balance-of-payments adjustments or to gain an unfair trade edge. The Treasury's next semi-annual report to Congress on the topic would typically come in April.
The last time the U.S. designated China a currency manipulator was in 1994, when Bill Clinton was president. Applying the label to China now would represent a major shift from U.S. practice over more than two decades.
China is “fully prepared” for such a move, Huntsman told the podcast. “The question will be, how do they then retaliate and does that cause a counter-retaliation and a spiraling out of control of the economic relationship which makes it more difficult to invest, to trade -- there's a loss in confidence overall and we wipe out a year or two of economic engagement.”
“The first few months will really be telling,” Huntsman added.
Huntsman, also a former governor of Utah, is currently chairman of the Atlantic Council, a think tank in Washington.
--With assistance from Andrew Mayeda
To contact the reporter on this story:
Christopher Condon in Washington at ccondon4@bloomberg.net
To contact the editors responsible for this story:
Brendan Murray at brmurray@bloomberg.net
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