U.S. urges China to open its doors to further trade
Washington backs away from labelling country a currency manipulator
The U.S. stopped short of branding China a currency manipulator, but urged the world’s second-largest economy to let the yuan rise with market forces and embrace more trade.
No major trading partner is manipulating its currency for an unfair trade advantage, according to the first foreign-currency report released by the Treasury Department under President Donald Trump on Friday. It kept China, South Korea, Japan, Taiwan, Germany and Switzerland on its foreign-exchange monitoring list.
“China currently has an extremely large and persistent bilateral trade surplus with the United States, which underscores the need for further opening of the Chinese economy to American goods and services,” as well as quicker reforms to boost household consumption, according to the Treasury report.
Trump declared on Wednesday that he will back away from a campaign promise to name China a currency manipulator, a move that would have created friction between the world’s largest economies as they try to boost trade co-operation and address North Korea’s nuclear threat. Trump, in a Wall Street Journal interview, said China hasn’t manipulated the yuan for months, while accusing nations that he didn’t identify of devaluing their currencies and saying the dollar is getting too strong.
The Treasury report said that for a decade China engaged in oneway large-scale interventions to hold down the currency, and then only allowed it to strengthen gradually — a practice that imposed “significant and long-lasting hardship on American workers and companies.” While China has been intervening to prevent a depreciation of the yuan, its selling of foreign currency reserves abated early this year, Treasury said. Now, China needs to show that its lack of intervention in the currency markets “to resist appreciation” over the past three years is a “durable” policy by allowing the yuan to strengthen “once appreciation pressures resume,” the Treasury said.
Like the last report by the Obama administration in October, China met only one of the three criteria — for having a large trade deficit — that’s used by the Treasury as a threshold for manipulation. China’s US$347 billion goods trade surplus with the U.S. was the largest of major trading partners last year, according to the report.
Taiwan also met one condition, while the other four met two.
The Treasury said Germany has a “responsibility” to help balance global demand and trade flows. Europe’s biggest economy should use fiscal policy to encourage strong domestic demand, which would put “upward pressure” on the euro. Switzerland “could increase reliance on policy rates in order to limit the need for foreign-exchange interventions, which should be made more transparent.”
In Asia, Taiwan, Japan and South Korea were urged to keep interventions to a minimum, and aspire to have flexible and transparent exchange rate policies.
“The United States cannot and will not bear the burden of an international trading system that unfairly disadvantages our exports and unfairly advantages the exports of our trading partners through artificially distorted exchange rates,” the report stated. “Treasury is committed to aggressively and vigilantly monitoring and combating unfair currency practices.”
The department is required by law to report to Congress twice a year on whether America’s major trading partners are gaming their currencies. The report is the government’s formal channel to impose the manipulator designation, leading to a year of negotiations for a solution and penalties if the practice continues.
The U.S. hasn’t branded any country a manipulator since 1994.
The Treasury left the criteria for manipulation unchanged at having a trade surplus with the U.S. above US$20 billion; having a current-account surplus amounting to more than 3 per cent of gross domestic product; repeated currency depreciating by buying foreign assets equivalent to 2 per cent of output over the year.
China has an extremely large and persistent bilateral trade surplus with the United States.