The US on Tuesday declined to name China as a currency manipulator, although it remained critical of the Chinese government’s economic policies ahead of a planned visit to Beijing by US President Donald Trump.
The semi-annual US Department of the Treasury currency report said no countries deserved the currency manipulator label, but it kept China on a currency “monitoring list” despite a fall in China’s global current account surplus since 2016.
China’s currency, the yuan, also has strengthened sharply against the US dollar this year, reversing three straight years of weakening.
The Treasury Department cited China’s unusually large, bilateral trade surplus with the US.
“The Treasury remains concerned by the lack of progress made in reducing the bilateral trade surplus,” the department said in the report. “China continues to pursue a wide array of policies that limit market access for imported goods and services.”
The US-China trade deficit stood near a two-year high in August.
Four other trading partners that were on the monitoring list in April — Japan, South Korea, Germany and Switzerland — remained on it.
The administration said it was removing Taiwan from the list because it had reduced the scale of its foreign exchange interventions.
In Taipei, central bank Deputy Governor Yang Chin-long (楊金龍) said the bank would continue the currency dialogue with Washington.
The South Korean Ministry of Strategy and Finance official in charge of currency markets said Washington’s decision was as expected, adding that a shrinking trade surplus with the US helped his country avoid the “currency manipulator” label.
“Currency markets should be market-oriented, and we conduct smoothing operations only in cases of sharp volatility,” International Finance Bureau Director-General Kim Yoon-kyung told reporters by telephone.
Trump, who on the campaign trail blamed China for “stealing” US jobs and prosperity by cheapening its currency, had repeatedly promised to label the country as a currency manipulator on “day one” of a Trump administration — a move that would trigger special negotiations and could lead to punitive duties and other action.
However, Trumps comments on China have been less harsh since he took office in January.
Currency market analysts by and large had not expected the Trump administration to take a hard line on the currency issue now in the context of the North Korea tensions.
“There’s a necessity for the best possible cooperation we can get out of China on the North Korea issue, and labeling them a currency manipulator is probably not the best way to go about that,” said Joseph Trevisani, chief market strategist at Worldwide Markets in Woodcliff Lake, New Jersey.
“In addition, there are very specific criteria at the Treasury for labeling someone a currency manipulator and over the past year and a half China simply does not fit those categories,” he said.
As in its previous report in April, the Treasury criticized China’s past efforts to hold down the yuan’s value, but added that more recent efforts by Beijing to prevent a sudden depreciation of the yuan had probably helped the US.
“A disorderly currency depreciation ... would have had negative consequences for the US, China and the global economy,” the Treasury said.
After three years of depreciating against the US dollar, in which it weakened by more than 12 percent, the yuan this year has strengthened by nearly 5 percent.
The Treasury did not alter its three major thresholds for identifying currency manipulation put in place last year by the Obama administration: a bilateral trade surplus with the US of US$20 billion or more; a global current account surplus of at least 3 percent of GDP, and persistent foreign exchange purchases equal to 2 percent of GDP over 12 months.
No countries were determined to have met all three of these criteria — a country would be put on the list if it met two of the criteria or if it accounted for a large and disproportionate share of the overall US trade deficit, the Treasury said, adding that countries put on the list would stay there for at least two consecutive reports “to help ensure that any improvement in performance versus the criteria is durable.”
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