Ex-Treasury official warns Trump that China 'knows exactly what it's doing' with its currency

Key Points
  • President Trump and Treasury should have had more discussions before declaring China a currency manipulator, argues Sarah Bloom Raskin.
  • China's Monday devaluation and Tuesday's firming shows it can use its currency as "both as a tool and a sword" in the ongoing trade war, she says.
Former US Treasury official on China's 'currency manipulator' designation

President Donald Trump and Treasury should have had more discussions before declaring China a currency manipulator, according to former Deputy Treasury Secretary Sarah Bloom Raskin.

"There should be a disciplined approach around going to war, so to speak, on a currency basis," Raskin, who also served as a Federal Reserve governor, told CNBC on Tuesday.

After China allowed its currency to slide to its lowest point in more than a decade, the Trump administration later Monday labeled Beijing a "currency manipulator," the first such designation in 25 years, back to the Bill Clinton presidency.

In a statement, the Treasury blasted the "implausibility of China's market stability rationale," saying Monday's devaluation was "to gain unfair competitive advantage in international trade."

For Tuesday, China set its currency at a stronger level, below the key 7-yuan-per-dollar threshold, while using state media to criticize the U.S. for "deliberately destroying international order."

"China knows exactly what it's doing here," said Raskin, in a "Squawk Box" interview. "It's telling us that it knows that this tool that is has ... it can use this both as a tool and a sword," in the ongoing U.S.-China trade war.

Raskin, currently a senior fellow at Duke University, was at Treasury and the Fed during former president Barack Obama's administration.

Meanwhile, former Ambassador Nicholas Burns later told CNBC's "Squawk Box" the two nations need to take "actions to lower the temperature" in their dispute and engage in "more diplomacy."

Tensions between the U.S. and Chinese governments are also playing out militarily and in the "battle of ideas," said Burns, whose 27-year career in foreign service spanned both Republican and Democratic administrations.

"There's a white hot relationship between China and the U.S.," he concluded.