The first U.S. Treasury report under Trump goes easy on China

The much anticipated Treasury report under the Trump administration failed to name any country as a currency manipulator but instead said that countries must do more to reduce their trade surplus with the U.S.

The Treasury report was released on Friday by the U.S. Treasury Department said that China wasn't a currency manipulator but it did mention that China and other countries including Germany, Japan and South Korea were being monitored over their currency and trade practices.

The Treasury report comes after the U.S. President Trump held talks with China's President Xi Jinping just a week ago while also meeting with German Chancellor, Angela Merkel and Japan's premier, Shinzo Abe.

The U.S. administration was particularly strong on the above nations with some of the officials coming out sharply against the trade and currency practices being pursued by the countries in question as accusations went back and forth.

The Treasury report was a U-turn on China. During the campaign trail, Trump said that he would label China as a currency manipulator on the first day of taking office which stoked tensions and speculations of potential trade wars.

However, the latest treasury report showed that China was doing the opposite, in that it was preventing the yuan from weakening further against the U.S. dollar and other currencies.

Despite letting China off the hook, the report said that the nation was still on the U.S. administration's "monitoring list." The report said that China will have to demonstrate its lack of intervention during the yuan's appreciation in the last three years as a potential and a durable policy shift.

The report expected that China will "let the yuan rise with market forces once appreciation pressures resume," and concluded with a soft warning that the Treasury department would be "scrutinizing China's trade and currency policies very closely."

 

How can a country be labeled as a currency manipulator?

For a country to qualify as a currency manipulator by the U.S. Department of Treasury, a number of factors are taken into account. Some of these include comparing the country's size of the current trade surplus with the U.S to its trade surplus with the rest of the world.

The department also factors in the number of times the country intervened in the currency markets in a period of time although there are no clear rules or guidelines on what qualifies as a currency intervention.

Once a country is designated as a currency manipulator, the U.S. administration beings intense talks with the country in question and failing to reach an agreement could result in the U.S. imposing trade tariffs.

For the moment, the Treasury's currency report said that China met only one of the factors, which is having a large trade surplus with the U.S. which as of data for 2016 amounted to over $347 billion. The U.S. view of China was one that of doubt and it was in 1994 when the Clinton administration singled out China as a currency manipulator.

The countries that were mentioned in the Treasury report were:

1. China

2. Germany

3. Japan

4. South Korea

5. Taiwan

6. Switzerland

All these six countries were named in the previous report which came out under the Obama administration. While China met only one of the factors, Germany matched two of the three factors which included a high trade surplus with the U.S. and a high trade surplus with the rest of the world.

President Trump has vowed to go after nations deliberately cheating on trade and currency and issued executive orders to investigate into the reasons behind the massive trade deficit that the U.S. has. As of 2016, trade deficit in the U.S. increased by $1.9 billion in 2015 to $502 billion.

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