This is something we were really hoping Congress would be smart enough to avoid, but here we are. It sounds like the idea of labeling China a currency manipulator is picking up steam on both sides of the aisle.

Senator Lindsey Graham (R-SC) talked about it at a security conference in Germany this weekend, according to Bloomberg:

"There's bipartisan support to declare China a currency manipulator," said Graham, whose stance was backed by Jeanne Shaheen, a Democrat from New Hampshire. "I don't want a war with China; I want a better relationship. But what they're doing needs to be pushed back against - and I think currency manipulation will be an issue that may unite the Congress."

It's unfortunate that Senator Graham feels that way because it's a stupid idea at best. At worst, it's a red herring.

This isn't about you

People in favor of labeling China a currency manipulator want to do so because they believe the country is purposely holding down the value of its currency, the yuan, in order to export more goods to the US. This is false.

In fact, China has been doing the exact opposite for a while now. It's propping up the value of the yuan, and in doing so putting its own economy in a risky position. 

To understand why you have to understand where China's economy is now and what the country's leaders want to do with it. Right now, they're trying to transition the economy from one based on manufacturing and exports to one based on domestic consumption and services industries.

You may note that this is the opposite of what the Trump administration wants to do with our economy. Go figure.

Regardless, having a domestically driven economy means that Chinese people need purchasing power, and if they're going to have it they're going to need a currency with some weight behind it.

Not only that, but this economic transition is happening at a time when Chinese companies have a lot of debt on their books - some of it in dollars. The further the yuan falls, the harder that is to pay back.

Lastly, the further the yuan falls against the dollar, the more Chinese people take cash out of the country. That's incredibly dangerous for China. For months now, the government has been spending its foreign reserves to prop up the yuan's value and putting up currency controls to keep money in the country. 

Even so, these measures aren't doing the entire job. In January, up to $82.7 billion left the country, according to Bloomberg economist Tom Orlik, bringing China's currency reserves down below the $3 trillion mark. In 2014, those reserves were sitting around $3.4 trillion.

Propping up the yuan, you see, is expensive.

Have y'all checked your rule book?

Now, we should also note that there are rules for what makes a country a currency manipulator. They are set by the Treasury Department.

Here are the criteria that must be met for a country to be considered a currency manipulator:

• 1) a significant bilateral trade surplus with the US;
• 2) a material current account surplus (>3% of GDP); and
• 3) persistent one-sided intervention in its currency market.

China meets only the first criterion. It does not fit the second, and as for the third, we just discussed that the country is doing the opposite.

Unfortunately, it seems Trump's team in the Treasury is willing to ignore all this.

His head of trade, Peter Navarro, is especially anti-China. In his documentary, "Death By China," one expert claims that China is the only country in the world "actively trying to kill Americans." The entire film is a rundown of all the ways China takes advantage of the United States, some of it is true, quite a lot of it is hyperbolic nonsense.

Goldman Sachs alum and Treasury Secretary Steve Mnuchin testified in his confirmation hearings that he would be willing to designate China a "currency manipulator," despite the fact that these same conditions existed as he was testifying.

The readout of his recent phone calls with Chinese officials is equally troubling.

"The Secretary emphasized the importance of achieving a more balanced bilateral economic relationship going forward," it said.

What's sad about this is that there are real issues to talk about with China. Stealing our intellectual property, that's a real issue. Stopping Chinese companies from illegally getting steel and other goods into the United States for sale (this is known as "dumping")  - that's another real issue.

If lawmakers continue focusing on issues driven by Donald Trump's economic self-victimization and his staff's paranoia and inexperience, we're going to take the entire global economy backward. Designating China a currency manipulator is not a real issue. It's a waste of our time.

 

For more on China, listen to BI's Linette Lopez and Josh Barro talk about it with hedge fund legend, Jim Chanos of Kynikos Associates, on their podcast, Hard Pass:

 

This is an opinion column. The thoughts expressed are those of the author.