US urges China to open trade, holds off on currency manipulator tag
But US Treasury keeps China on watch list – along with Japan, South Korea and Germany
The United States has stopped short of branding China a currency manipulator, but urged the world’s second-biggest 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 US Treasury Department under US 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 would 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 cooperation and address North Korea’s nuclear threat. Trump, in a Wall Street Journal interview, said China had not manipulated the yuan for months, while accusing nations that he didn’t identify of devaluing their currencies and saying the US dollar is getting too strong.
The report contains an implicit threat that unless China gives US exporters greater market access and further rebalances the economy, the US could act to rectify the trade imbalance, according to Eswar Prasad, former head of the International Monetary Funds China division.
“While China now meets only one of the three criteria for currency manipulation listed in the report, the text makes clear that China’s large bilateral trade surplus with the US is by itself enough to warrant careful scrutiny of China’s trade and currency practices,” Prasad said.
The Treasury report said that for a decade China engaged in one-way, 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 had been intervening to prevent a depreciation of the yuan, its selling of foreign currency reserves abated early this year, Treasury said.
Now, China needed to show that its lack of intervention in the currency markets “to resist appreciation” over the past three years was a “durable” policy by allowing the yuan to strengthen “once appreciation pressures resume”, the Treasury said.
Zhou Shijian, a senior fellow at Tsinghua University’s Institute of International Relations, said the Treasury made a “right and realistic decision” not to label China as a currency manipulator, something China had not been branded since 1994.
“China has clearly embarked on market-oriented exchange rate reform, with the yuan’s daily trading band already expanded to 3 per cent from 0.3 per cent,” Zhou said.
He said progress on trade was needed to narrow the deficit between the two countries but that should be achieved through increasing US exports to China, not cutting US imports of Chinese goods.
Zhou said sales of US civilian high technology, especially in the energy and environment sectors, could amount to US$100 billion, transactions that would be “good for both countries”.
“Protectionist rhetoric is a good way to win votes, but is difficult to put into practice,” he said.
Zhou said plans for the US and China to spend 100 days looking for ways to tackle the trade imbalance were “just a beginning” and could result in China lifting a ban on American beef and opening up its financial market in the short term.
China’s Ministry of Foreign Affairs did not immediately respond to a request on Saturday seeking comment on the report.
Additional reporting by Frank Tang