Summers Says Labeling China Currency Manipulator Is Unjustified

(Bloomberg) -- Former Treasury Secretary Lawrence Summers criticized the Trump administration's decision to name China a currency manipulator and said a U.S. move to intervene in foreign-exchange markets to push the dollar lower against the yuan risked hurting American credibility.

In an interview with Bloomberg Television on Tuesday, Summers said that that he did not see the Treasury intervening in the foreign-exchange markets by buying yuan without the support of the Federal Reserve, saying that it would “betray the aberrant quality of this Treasury's decision making.”

“With the Fed, it's doing grave damage to our monetary credibility. Without the Fed, it's flailing around in a fairly useless way. With this administration, one learns never to say never, but I would be surprised if we saw a currency intervention.”

The Harvard professor was responding to the Trump administration's designation of China as a currency manipulator -- a tag that's mostly a public shaming aimed at forcing negotiations. The two countries have been locked in a trade dispute since the U.S. imposed tariffs on Chinese goods in March 2018 as part of President Donald Trump's “America First” policy. Now some $250 billion in Chinese imports are covered with a 25% tariff, and Trump is threatening taxes on the remaining $300 billion.

Summers also said that the dispute was unjustified and risked an “out of control” trade war with the world's second-largest economy. He pointed out that China has been preventing its currency from sinking, not pressing it lower.

“I don't think there was much justification” in the Treasury's manipulator decision, he said. “When you are propping up your currency, not running a trade surplus, you're not manipulating the currency on any definition that is understood and accepted in the financial community.”

Summers served as Treasury secretary in the Bill Clinton administration and during his time sanctioned the Fed's cooperation in the propping up of the weakening euro in 2000. He drew a distinction between that foreign-exchange intervention and any possible one against China.

“We were asked by the Europeans to respond to weakness in the euro. It was not trying to sell and trash and denigrate our own currency. There's really no analogy between that situation and this one.”

--With assistance from Alix Steel, David Westin and Zoe Schneeweiss.

To contact the reporter on this story: Eddie Spence in London at espence11@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Brendan Murray, Scott Lanman

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