Why US trade strategy against China avoids the real issue: currency manipulation

The White House announced a new artificial intelligence system last week to catch Chinese goods sneaking into America through the back door. The tool would scan shipping manifests and bills of lading with tireless precision, never sleeping, never forgetting, hunting for products that left Chinese factories only to be relabeled in Vietnam, Mexico, or Malaysia before crossing into the United States. Trade adviser Peter Navarro was visibly angry about it—Chinese motors bolted onto recliners, power supplies rerouted through third countries, aluminum sheet and valves and furniture components disappearing into the supply chain and reappearing as someone else's goods. The Commerce Department had tallied it up: $67 billion worth of Chinese-origin goods transhipped through other nations in 2025 alone.

It sounds like a victory. Imports from China have fallen 40 percent in the year to June compared with the same period in 2024. The Trump administration, which negotiated a truce with Beijing last October after China threatened to cut off rare-earth magnets to American manufacturers, has been content to declare the trade war won and move on. But the numbers tell a different story. While the volume of goods arriving directly from China has plummeted, the actual Chinese content embedded in American imports has barely budged. The supply chain simply rerouted itself. The problem didn't disappear; it just took a longer path.

This is where the White House's strategy reveals its fundamental weakness. The administration is chasing symptoms while ignoring the disease. Economists and trade analysts point to a single, straightforward culprit that the United States has the legal authority to address but has chosen not to: the Chinese yuan is artificially weak, and Beijing has engineered it that way. A deliberately undervalued currency makes Chinese goods cheaper on world markets. It guarantees Beijing a massive trade surplus. It props up exports at the expense of domestic consumption. And it does all of this while the rest of the world absorbs the consequences.

The evidence is substantial. China's share of global manufacturing exports has grown from 3 percent in 1995 to 20 percent today. The country now accounts for more than half of global exports in hundreds of product categories. Its current account surplus—roughly 5 percent of its GDP—represents a staggering drain on worldwide demand. When the yuan appreciated after the 2008 financial crisis, China's external surplus contracted sharply. When the currency weakened again starting in 2023, the surplus began climbing. The pattern is clear: exchange rates matter enormously.

Historical precedent supports this view. The Plaza Accord of the 1980s weakened the dollar and helped reduce America's trade deficit with Japan. Currency adjustment, not tariffs or supply-chain policing, proved to be the lever that moved the market. Yet the Trump administration has chosen instead to deploy an AI border detective and crack down on Vietnam and Mexico—countries far weaker than China—for the crime of processing Chinese components. This is, as one analyst noted, being too afraid to confront the actual problem directly.

The deeper issue is that addressing currency undervaluation would require Beijing to make a choice it has resisted for decades: allowing the yuan to rise, which would slow export growth and force China to rely more on domestic consumption to fuel its economy. It would also require Washington to confront its own budget deficit, which has ballooned to levels not seen since the 20th century and must be financed by foreign savings—much of it from China. The exchange rate, in other words, is a symptom of these larger imbalances. But symptoms can be treated. The United States has legal tools available under Section 301 of the Trade Act to impose tariffs on countries that deliberately undervalue their currency. Europe could coordinate similar pressure through World Trade Organization mechanisms. If deployed strategically and paired with a credible path to de-escalation, such pressure could force Beijing to choose between allowing the yuan to appreciate or facing escalating trade barriers.

This would require coordination with allies, careful diplomacy, and a willingness to sustain pressure over time. It would require the kind of strategic patience and multilateral thinking that has not been the administration's forte. But it would also address the actual mechanism driving China's overwhelming exports rather than playing an endless game of whack-a-mole with transhipment routes. The factories in Toledo, Hickory, and Phoenix will not be saved by catching rerouted goods at the border. They might be saved by making Chinese goods less artificially cheap. The question is whether Washington has the will to try.