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US stops listing China as a currency manipulator, raising hopes of end to trade war

Donald Trump’s administration has formally stopped classifying China as a currency manipulator ahead of the signing of a long-awaited trade deal between the world’s two largest economies this week.

As senior Chinese officials arrived in Washington on Monday to sign the "phase one" agreement, US trade secretary Steve Mnuchin announced a significant concession to Beijing, reversing a decision made on Mr Trump’s orders in August.

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The US president has railed against China for years, claiming it artificially lowers the value of the renminbi in order to make its exports cheaper, harming American industry in the process. Beijing has consistently denied the charge.

“China has made enforceable commitments to refrain from competitive devaluation, while promoting transparency and accountability,” Mr Mnuchin said in a statement.

The US Treasury Department said the renminbi had increased in value since the currency manipulator label was applied.

"In this context, Treasury has determined that China should no longer be designated as a currency manipulator at this time," the department said.

The US and China are set to sign a so-called "Phase 1" trade agreement on Wednesday. It is being viewed as an opening to future negotiations that will deal with more complicated trade issues.

Optimism that a damaging trade dispute is showing signs of easing gave markets a dose of optimism on Tuesday, with Asian shares following Wall Street higher. Indexes in Japan, Australia and South Korea all posted gains.

The “currency manipulator” designation came at the height of the US-China trade war, with Washington accusing Beijing of attempting to gain an “unfair competitive advantage” for its goods.

China rejected the allegations, suspended purchases of American agricultural products and vowed to retaliate with 10 per cent tariffs on $300bn of imports from the US. 

China said it had allowed its currency to fall against the dollar to mitigate the anticipated damage to its economy from new US tariffs. A devalued renminbi would make Chinese goods cheaper in other markets, partially compensating for lost exports to America.

A weaker renminbi was one of a number of unintended consequences of Mr Trump’s trade policy. The president’s protectionist agenda is aimed at supporting American regions that have suffered job losses and economic decline as a result of globalisation and deindustrialisation, but has in fact hurt some of those same regions.

Last week, a study concluded that tariffs imposed by Mr Trump and his Chinese counterpart Xi Jinping have hit firms in their own countries almost as much as the ones they were aiming at.

Academics scrutinised stock market responses in order to gain a real-time assessment of the impact of the trade war that was harder to retrieve from economic data that were often out of date or affected by other events.

Since February 2018, the US has slapped tariffs on $550bn (£420bn) worth of Chinese products. China, in turn, has set tariffs on $185bn (£140bn) worth of US goods.

Peter Egger a professor at ETH-Zurich university and Jiaqing Zhu at Guangdong University of Foreign Studies, found that while the trade war tariffs of the US and China directly hurt targeted firms and sectors abroad as intended, they indirectly affect stock prices through global value chain linkages in the US, China, and in third economies that do not directly participate in the trade war.

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