China says no to 'currency war' after Trump criticism of yuan

BEIJING (Reuters) - China said on Friday it has never used its currency as a tool to gain an advantage in trade and was not seeking a “currency war”, after U.S. President Donald Trump criticized Beijing for harming American companies and consumers with a devaluation of its yuan.

Light is cast on a U.S. one-hundred dollar bill next to a Japanese 10,000 yen note in this picture illustration shot February 28, 2013. REUTERS/Shohei Miyano/Illustration/File Photo

Throughout his election campaign, Trump threatened to levy punitive tariffs against China in order to bring down the U.S. trade deficit, and any formal declaration of China as a currency manipulator could provide a mechanism for launching that effort.

Trump on Tuesday unleashed a barrage of criticism against Japan and China, saying the two key U.S. trading partners were devaluing their currencies.

Japanese policymakers hit back on Wednesday at Trump’s accusation, stressing that Japan was abiding by a G20 agreement to refrain from competitive currency devaluation.

Chinese Foreign Ministry spokesman Lu Kang, in the government’s first response to Trump’s remarks following a week-long recess for the country’s Lunar New Year holiday, said that trade problems between China and the United States should be resolved through talks.

“China has never and won’t use a currency war to seek advantage in trade or to raise competitiveness in trade,” Lu told reporters at a daily news briefing.

“We have no intention of fighting a currency war. From a long-term perspective this is not beneficial to China,” he said.

While China was widely viewed to have held down the value of the yuan to gain a trade advantage five to 10 years ago, many economists say that in the past year, Beijing has been working to prop up the yuan’s value.

China’s central bank has spent hundreds of billions of dollars in reserves to keep the yuan from falling further in the face of capital outflows caused by economic uncertainty. But the currency still fell nearly 7 percent last year, its biggest loss against the dollar since 1994.

Trumps latest criticism signals a weakening of the U.S. commitment to that agreement among the financial leaders of the world’s top 20 economies, struck after the 2008 financial crisis, that countries would not pursue policies to target exchange rates for competitive purposes.

It was also an indication that the first-term Republican president is prepared to jettison two decades of “strong dollar” policies advocated by predecessors dating back to the Clinton administration.

If the U.S. Treasury Department declares Beijing a currency manipulator, it starts a process under which the Trump administration is required by law to demand special negotiations with Beijing to resolve the issue.

That process could end in punitive duties on Chinese goods aimed at eliminating any advantage that currency manipulation would provide.

Reporting by Ben Blanchard; Writing by Michael Martina; Editing by Kim Coghill