WASHINGTON—In reaction to China's latest devaluation of the yuan, the Department of the Treasury has officially designated China as a currency manipulator.
"China has a long history of facilitating an undervalued currency through protracted, large-scale intervention in the foreign exchange market," Treasury said in an Aug. 5 news release announcing the designation.
"In recent days, China has taken concrete steps to devalue its currency, while maintaining substantial foreign exchange reserves despite active use of such tools in the past," the agency said.
"The context of these actions and the implausibility of China's market stability rationale confirm that the purpose of China's currency devaluation is to gain an unfair competitive advantage in international trade."
The Omnibus Trade and Competitiveness Act of 1988 requires the Secretary of the Treasury to analyze the exchange rate policies of other countries, and to designate as currency manipulators those countries that manipulate the rate of exchange between their currencies and the U.S. dollar to gain unfair competitive advantage in international trade.
The designation allows the U.S. to take further retaliatory steps if China continues to devalue its currency.
The Alliance for American Manufacturing, which has long advocated the designation of China as a currency manipulator, noted that this is the latest salvo in the growing trade war between the U.S. and China.
"One thing we will point out is that China has been manipulating its currency for years—and the designation is something (President) Trump promised to do his first day in office," the AAM said in an Aug. 6 news release.
"So while (the Aug. 5) decision is clearly the Trump administration's next move in the trade war, it isn't without merit."
China is widely seen as devaluing the yuan in retaliation for President Trump promising to levy 10 percent tariffs on some $300 billion worth of goods imported from China, in addition to the existing 25 percent tariffs on another $250 billion worth of Chinese goods.
The combination of the new tariffs and the currency devaluation had a strong negative effect on the stock market. On Aug. 5, the Dow Jones Industrial Average fell 767.27 points to close at 25,717.74.
The Dow partially recovered Aug. 6, gaining 311.78 points to close at 26,029.52.
Those gains were quickly erased in the morning of Aug. 7 when the Dow opened about 500 points lower, but rebounded throughout the day to post a slight gain, closing at 26,044.57.