Taiwan and Thailand risk joining Vietnam and Switzerland in running afoul of US currency manipulation triggers in US Secretary of the Treasury Janet Yellen’s first foreign exchange report, expected this week, but whether she would apply that label is unclear.
US President Joe Biden’s administration has sought to engage more constructively with trading partners and allies, and currency experts say Yellen could veer from the aggressive approach applied by the administration of former US president Donald Trump in the currency report, taking into account the trade and capital flow distortions amid the COVID-19 pandemic, and reviewing the structure of the report.
“I think the Yellen Treasury would be inclined to take a more flexible approach,” said Matthew Goodman, a former US Treasury official now with the Center for Strategic and International Studies.
However, Yellen’s hands are “tied somewhat” by the criteria applied to deciding whether a trading partner manipulates its currency, Goodman added.
Yellen also has challenges in softening Washington’s position, facing pressure from labor unions and Democrats in the US Congress to maintain a tough stance on currency manipulation.
Trading partners are labeled manipulators if they meet specific criteria — a more than US$20 billion bilateral trade surplus with the US, foreign currency intervention exceeding 2 percent of GDP and a global current account surplus exceeding 2 percent of GDP — which led the Trump administration to label Switzerland and Vietnam as currency manipulators in December last year.
US law requires the Treasury to seek negotiations with manipulators to bring them back below the thresholds, with specified remedies, including denying them access to US government procurement contracts and development finance.
The report is expected to signal how strictly Yellen interprets the criteria, or whether she reverses tightening moves by her predecessor, Steven Mnuchin, who reduced the current account threshold to 2 percent of GDP from 3 percent, ensnaring more countries.
Foreign exchange analysts say that Taiwan, with a current account surplus of 14 percent last year, a record US$30 billion trade surplus with the US and net foreign exchange purchases of nearly 6 percent of GDP, is firmly in the Treasury’s crosshairs during this cycle, even though the New Taiwan dollar remains near 23-year highs.
Vietnam, Thailand and Singapore are in similar straits, analysts said.
BBH analyst Win Thin also sees Malaysia and South Korea at risk.
Although the Swiss National Bank appears to have sold off a tiny portion of its nearly US$1 trillion foreign currency pile to show goodwill to the US Treasury, “that won’t be enough to get off the list,” Credit Suisse economist Maxime Botteron said.
The Treasury declined to comment on the contents of the forthcoming currency report, as did the Swiss National Bank .
For Vietnam, the designation has bigger consequences, as the Office of the US Trade Representative has an active investigation on Hanoi’s currency practices that could lead to US tariffs on imports from Vietnam.
A number of countries are expected to remain or appear on the “monitoring list,” Thin said, among them China, Germany, Japan, Italy, India, Singapore, Ireland and Mexico.
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