Trump stops short of labeling China, Germany currency manipulators

China and Germany are not manipulating the value of their currencies to gain an unfair trade advantage, but both should do more to reduce their large trade surpluses with the United States, the Treasury Department said Friday.

China is still on a currency "monitoring list" on the US Treasury's semi-annual report, one step below being labeled a currency manipulator.

But reflecting the views of most economists, Treasury concluded that China has recently been intervening to do the opposite - to keep the renminbi from falling against the dollar and other currencies.

Earlier this week, U.S. President Donald Trump reversed course on a promise that he had made both on the campaign trail and from the White House: that he would designate China as violating global exchange-rate rules, pushing down the yuan to gain a competitive advantage.

New language in the Treasury report citing a history of currency intervention in China, South Korea and Taiwan is in line with what experts say could be eventual changes to the criteria aimed at deterring future manipulation.

The Treasury also warned that it will scrutinize China's trade and currency practices very closely and called for faster opening of China's economy to U.S. goods and services and a shift away from exports to more domestic consumption.

The report said that China remained on the list because of its "disproportionate share of the overall US trade deficit", despite that China's current account surplus was only 1.8 percent of GDP in 2016, sharply down from 2.8 percent of GDP in 2015. It also noted Korea's track record of "asymmetric foreign exchange interventions".

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The United States has declined to label China a currency manipulator despite President 's insistent pledge during the election campaign that he would do so as soon as he took office.

China only meets the criterion of having a major trade surplus.

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 1992.

"They're not currency manipulators", Trump told The Wall Street Journal in an April 12 interview, adding that China hasn't been manipulating its currency for months and that labeling China a manipulator could discourage the country from helping the United States with North Korea.

"When our trading partners engage in currency manipulation, they impose significant, and often long-lasting hardship on American workers and businesses". "Treasury urges Korea to enhance the flexibility of the exchange rate and will be closely monitoring Korea's currency intervention practices".

But the reversal could also mean that Trump and Chinese President Xi Jinping may have figured a way to fix the trade imbalance and the tension in the Korean peninsula during their meeting earlier this month in Florida.

The report also criticized Japan for failing to do more to stimulate domestic demand and thereby increase sales of USA and other foreign goods.

(Copyright © 2015. All Rights Reserved.)

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