US-China trade talks must cover cur­rency: Mnuchin

Gulf Times Business - - BUSINESS -

US Trea­sury Sec­re­tary Steven Mnuchin said yes­ter­day that he told China’s cen­tral bank chief that cur­rency is­sues need to be part of any fur­ther US-China trade talks and ex­pressed his con­cerns about the yuan’s re­cent weak­ness.

Mnuchin also told Reuters in an in­ter­view that China needs to iden­tify con­crete “ac­tion items” to re­bal­ance the two coun­tries’ trade re­la­tion­ship be­fore talks to re­solve their dis­putes can re­sume.

The US Trea­sury chief and Peo­ple’s Bank of China Gover­nor Yi Gang ex­ten­sively dis­cussed cur­rency is­sues on the side­lines of the In­ter­na­tional Mon­e­tary Fund and World Bank an­nual meet­ings on the In­done­sian re­sort is­land of Bali.

“I ex­pressed my con­cern about the weak­ness in the (yuan) cur­rency and that as part of any trade dis­cus­sions, cur­rency has to be part of the dis­cus­sion,” Mnuchin said of the meet­ing.

The two se­nior of­fi­cials talked about mar­ket fun­da­men­tals that have driven the yuan down against the dollar, Mnuchin said, adding: “I think we had a pro­duc­tive ex­pla­na­tion from his stand­point on those is­sues.”

Yi told an in­vest­ment au­di­ence on Thurs­day that China’s mon­e­tary pol­icy was on an op­po­site cy­cle to that of the US Fed­eral Re­serve, which has been raising rates amid a strong econ­omy, peo­ple who at­tended the closed-door ses­sion said.

Mnuchin’s com­ments on China’s cur­rency come ahead of next week’s sched­uled re­lease of a hotly an­tic­i­pated Trea­sury re­port on cur­rency ma­nip­u­la­tion, the first since a sig­nif­i­cant weak­en­ing of yuan be­gan this spring as trade ten­sions be­tween the world’s two largest economies es­ca­lated.

The yuan weak­ened yes­ter­day to 6.912 to the dollar as China re­ported a record Septem­ber trade sur­plus with the United States, fan­ning fears of an es­ca­la­tion of the two coun­tries’ trade war. The Chi­nese cur­rency has de­pre­ci­ated by 5.6% against the dollar since the start of the year.

Mnuchin would not dis­cuss the find­ings of the cur­rency re­port and de­clined com­ment on me­dia re­ports that Trea­sury staff had rec­om­mended that China not be la­belled a cur­rency ma­nip­u­la­tor.

But Mnuchin em­pha­sised that the re­port is based on rig­or­ous re­search and data, and that Trea­sury’s ca­reer staff and lead­er­ship were fully aligned on cur­rency is­sues.

“The cur­rency re­port is some­thing we re­port to Congress. It is done pur­suant to two sep­a­rate pieces of leg­is­la­tion. This is not a po­lit­i­cal doc­u­ment,” he said.

IMF manag­ing di­rec­tor Chris­tine La­garde warned on Thurs­day against adding cur­rency wars to the trade con­flict, say­ing this would hurt global growth and “in­no­cent by­stander” coun­tries.

De­spite US Pres­i­dent Don­ald Trump’s pledge to de­clare China a cur­rency ma­nip­u­la­tor on “day one” of his ad­min­is­tra­tion, the Trea­sury has stuck to its three-part test for ev­i­dence of cur­rency ma­nip­u­la­tion – and China has failed to qual­ify for such a des­ig­na­tion.

These in­clude a high bi­lat­eral trade sur­plus with the United States, a global cur­rent ac­count sur­plus above 3% of gross do­mes­tic prod­uct and “per­sis­tent” one-way cur­rency mar­ket in­ter­ven­tion to weaken or pre­vent a rise in a coun­try’s cur­rency.

In the past two years, China has failed on only one cri­te­ria, its high trade sur­plus with the United States.

US laws man­dat­ing the re­port re­quire the Trea­sury to en­ter spe­cial ne­go­ti­a­tions with an of­fend­ing coun­try to cor­rect their prac­tices, a process that could even­tu­ally lead to trade sanc­tions.

But the Trump ad­min­is­tra­tion has al­ready hit China with tar­iffs on $250bn worth of Chi­nese goods im­ports, and has threat­ened du­ties on the re­main­ing $267bn. Mnuchin de­clined to con­firm a Wall Street Jour­nal re­port that the White House had de­cided to pro­ceed with a meet­ing in Novem­ber be­tween US Pres­i­dent Don­ald Trump and Pres­i­dent Xi Jin­ping at the G20 lead­ers sum­mit in Buenos Aires.

But he said re-launch­ing trade talks would re­quire China to com­mit to tak­ing ac­tion on struc­tural re­forms to its econ­omy.

“It’s got to be more than a sig­nal” from China, Mnuchin said. “It has to be that we can reach an agree­ment on ac­tion items that can re­bal­ance the re­la­tion­ship.

We’ve made it clear that if they have real ac­tion items that they want to dis­cuss that we will lis­ten.”

If the re­la­tion­ship could be re­bal­anced, he said the US-China to­tal an­nual trade re­la­tion­ship could grow to $1tn from $650bn cur­rently, with $500bn of ex­ports from each coun­try.

That would ap­proach the $1.2tn USCanada-Mex­ico trade un­der the North Amer­i­can Free Trade Agree­ment.

As the IMF launches talks with Pak­istan over a bailout pack­age, Mnuchin said trans­parency was needed for Pak­istan’s debts to China and other cred­i­tors. “I think it’s pretty clear that if there is an IMF pro­gramme, that we’d need to make sure those funds are used for ap­pro­pri­ate pur­poses and they’re not be­ing used to re­pay China or other cred­i­tors.

From left: World Bank pres­i­dent Jim Yong Kim, IMF manag­ing di­rec­tor Chris­tine La­garde, Fin­land Fi­nance Min­is­ter Pet­teri Orpo and In­done­sia’s Pres­i­dent Joko Wi­dodo at­tend a ple­nary ses­sion at the IMF-World Bank meet­ing in Nusa Dua, In­done­sia yes­ter­day.

US Sec­re­tary of the Trea­sury Steven Mnuchin speaks dur­ing an in­ter­view with Reuters at the In­ter­na­tional Mon­e­tary Fund–World Bank An­nual Meet­ing 2018 in Nusa Dua, In­done­sia. Mnuchin said China needs to iden­tify con­crete “ac­tion items” to re­bal­ance the two coun­tries’ trade re­la­tion­ship be­fore talks to re­solve their dis­putes can re­sume.

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