China not a currency manipulator: Obama Treasury Department
Declaration rejects Donald Trump’s approach to world’s second biggest economy
The Treasury Department for the final time during President Barack Obama’s tenure declined to label China a currency manipulator, in an implicit rejection of Republican nominee Donald Trump’s hard-line approach to the world’s second-biggest economy.
The Obama administration added Switzerland to a currency watch list that already included China, Japan, Germany, South Korea and Taiwan, according to a semi-annual report on global foreign-exchange policies from the Treasury. However, it found that no major trading partner met the legal definition of a currency manipulator, and the US said China’s recent efforts to prop up the yuan were preventing a rapid depreciation that would hurt the global economy.
China was found to meet only one of three criteria used to determine the watch list, compared with two of three in April. If China still meets only one condition in the next report, it could be removed from the list.
Applying the manipulator label to China would represent a major shift from US practise over more than two decades, and would risk provoking retaliation. The last time the US designated China a currency manipulator was in 1994, when Bill Clinton was president.
Under a 1988 law, the Treasury is required to assess whether major trading partners game their currencies to prevent balance-of-payments adjustments or to gain an unfair trade advantage.
Both US presidential candidates have signalled tougher stances on China ahead of next month’s election. Trump has come out more aggressively against the Asian nation.
“They are a manipulator, grand master level,” Trump said in an economic policy speech last month. “I am going to instruct my Treasury secretary to label China a currency manipulator and to apply tariffs over any country that devalues its currency to gain an unfair advantage over the United States.”
Trump has also promised to impose a 45 per cent tariff on non-oil exports from China.
Democratic nominee Hillary Clinton has said she wants to prevent countries like China from abusing global trade rules by strengthening enforcement. Like Trump, she opposes a trade deal with Pacific Rim nations signed by Obama, and she has expressed concern about currency manipulation, without specifying any countries.
Jacob J. Lew, the current US Treasury secretary, was deputy secretary of state under Clinton when she served in the Obama administration.
The Treasury created a new monitoring list in April after Congress passed a law requiring closer scrutiny of foreign-exchange regimes. Treasury officials developed three criteria to decide if countries are being unfair: an economy having a trade surplus with the US above $20 billion; having a current-account surplus amounting to more than 3 per cent of its gross domestic product; and one that repeatedly depreciates its currency by buying foreign assets equivalent to 2 per cent of output over the year.
Meeting all three would trigger action by the president to enter discussions with the country and seek potential penalties.
China retains a significant trade surplus with the US, and greater transparency from the Chinese government of its foreign-exchange goals would bolster the currency regime’s credibility, the Treasury said. But its current-account surplus narrowed to 2.4 per cent of GDP for the 12 months through June, putting it below the threshold for the watch list.
Rather than trying to weaken the yuan to gain an advantage, China sold an estimated US$570 billion in foreign-exchange assets from August 2015 to August 2016 in an effort to prevent a rapid decline in the currency, the Treasury said. The yuan has declined about 3.5 per cent against the dollar in 2016.
Taiwan remained on the list because of persistent intervention to weaken its currency, and a current-account surplus, according to the Treasury.