If a Chinese factory sells Halloween costumes to Walmart, a tariff increase of 10 per cent by US customs will be fully offset by a 10 per cent depreciation of the renminbi.

There may be other reasons for the latest change of the renminbi exchange rate, but the impact of offsetting the US tariff increase is hard to deny.

If the exchange rate was entirely determined by market forces, the US would have no reason to complain. But, in China, that is not the case. This makes it vulnerable to charges of currency manipulation.

Since president Bill Clinton, no US administration had formally labelled China a currency manipulator. There are reasons for such discretion.

In the grand scheme, considering other policy objectives that need China’s cooperation – such as anti-terrorism and containing North Korea – it was not worth picking a fight on currency matters.

Moreover, until the recent souring of bilateral relations, US multinationals had by and large enjoyed the fruits of accessing China’s cheap labour and growing market.

Naming a country a currency manipulator is very much a judgment call. Trump had probably hoped that by not labelling China as such, Beijing would have an incentive to reach a trade agreement with the US. Such a deal has proved elusive.

When the exchange rate slid past 7, China was essentially calling Trump’s bluff. He had no choice but to use the currency manipulation card. But the move is too late to be effective.

US laws require the government to have “enhanced engagement” with the country accused of currency manipulation. If no solution is found after a year of such engagement, the US government is required to take one or more of the following measures:

• Prohibit the Overseas Private Investment Corporation from approving any new financing for a project in that country;
• Prohibit the federal government from procuring goods or services from that country;
• Instruct the US executive director of the International Monetary Fund to call for additional rigorous surveillance of the macroeconomic and exchange rate policies of that country and, as appropriate, hold formal consultations on the findings of currency manipulation; and/or
• Instruct the US Trade Representative to take into account the extent to which the country has failed to adopt appropriate policies to correct undervaluation and surpluses in assessing whether to enter a bilateral or regional trade agreement with that country or participate in negotiations with respect to a bilateral or regional trade agreement with that country.

The irony is that China and the US have been engaged in intense negotiations for nearly a year now. Trump has almost run out of room for adding tariffs.

Now or one year later, none of the four measures listed above would add any meaningful pressure on China, considering the sanctions and pressure that have already been deployed by the US administration.

Internationally, currency matters fall under the IMF’s jurisdiction. But the IMF, by design, has no hard power to enforce any punitive action against its members, not to mention China’s growing influence as the second-largest voting power next to the US in the IMF.

To the extent that currency manipulation undermines fair trade, the suitable international organisation to adjudicate in the dispute would be the WTO, except that there are no formal WTO rules making currency manipulation grounds for a member state to file a legal complaint against another member state.

Three years into his term, Trump has withdrawn from numerous treaties on trade, climate and arms control. Declaring an economy a currency manipulator under domestic laws, albeit a rare move and the first in 25 years, no longer has the kick it was supposed to give.

Frank S. Hong is a corporate lawyer and independent scholar based in Shanghai