WSJ asks the question: China’s trade surplus is shrinking, foreign investors withdrawing and the broad economy slowing sharply. So what’s a fair value for the yuan now?

Beijing has an answer: Since July, the yuan’s daily exchange rate against the dollar — effectively set by the government — hasn’t changed much. It currently costs 6.83 yuan to buy a dollar, as it did last summer.

The exchange rate’s variation has been so low that it fits the definition of a pegged currency, posits Marc Chandler, strategist at Brown Brothers Harriman.

Washington has long claimed that the yuan is too weak.

But a key leg of the argument that the yuan is undervalued — China’s massive trade surplus — has become wobbly.

The surplus narrowed in February to $4.8 billion from about $40 billion in each of the previous three months, and in all likelihood will fall for the first time in five years in 2009.

There is a line of thought that even detects pressure on the yuan to decline because trade and investment flows have reversed so sharply.

Citi Investment Research economist Ken Peng foresees a stable yuan for the rest of this year, and is watching for any signs that Beijing may guide the currency lower. Language highlighting “flexibility in currency management” would be one.

It would take a very steep depreciation to make China competitive against its export rivals. Since July, the yuan is up 33% against the Korean won and up 12% against the Singapore dollar, for example. This has made Chinese exports relatively less competitive while spurring more imports and thereby providing somewhat of a boost to other economies.

The U.S. Treasury will announce this spring whether it will slap a “currency manipulator” tag on China, something that it hasn’t done since 1994.

In fact, by any objective standard China is a currency manipulator, even if, naturally, it dislikes the term.

But with China holding its currency stable against the dollar even as its trade position has weakened, Washington’s long-standing argument that Beijing is keeping the yuan unjustifiably low is losing weight.