US President Barack Obama’s administration has raised concerns about the value of China’s currency, but declined again to accuse Beijing of manipulating it. However, it had sharp criticism for Germany, a traditional ally, saying that country needs to do more to rebalance growth in Europe and the global economy.
In a semi-annual report to the US Congress on Wednesday, the Department of Treasury said that China’s currency, the yuan, remains “significantly undervalued.” However, it added that China’s actions do not meet the legal requirements for the country to be designated a currency manipulator. That designation would trigger intensive negotiations and could ultimately lead to trade sanctions.
The report criticized Germany for maintaining a large trade surplus throughout the EU debt crisis. It said that Germany’s surplus was larger than China’s trade surplus last year and this is causing trouble for its European neighbors.
It urged Germany to push for more domestic-led growth rather than relying so much on exports to fuel its economy. This would have the advantage of providing markets to boost the exports of Germany’s neighbors and other nations.
“Germany’s anemic pace of domestic-demand-led growth and dependence on exports have hampered rebalancing,” the report said.
The report also said that China’s currency is appreciating, but not as fast or by as much as needed.
“The RMB [renminbi] is appreciating but not as fast or by as much as needed. Treasury will carefully monitor the pace of RMB appreciation and press for further policy changes consistent with market determination of the exchange rate,” it said.
The report also cautioned Japan about its currency policies. Japan’s central bank this year launched a new effort to bolster the country’s economy. That effort has weakened the value of the Japanese yen and could widen the US-Japan trade gap.
The Treasury said it would discourage South Korea’s government from intervening in currency markets unless such action is needed to stabilize disorderly markets. It said the won remained undervalued by 2 to 8 percent, according to IMF data, and noted that Seoul had amassed US$326 billion in foreign exchange reserves, more than it needs.
“We will continue to encourage Korean authorities to limit foreign exchange intervention to the exceptional circumstances of disorderly market conditions,” the report said.
The Obama administration has now declined to brand China as a manipulator for 10 straight reports. The US’ trade deficit with China has for years been the largest with any country.
The last time the US named any country as a currency manipulator was in 1994 when the administration of then-US president Bill Clinton made that accusation against China.