Treasury Report Finds No Unfair Currency Intervention Worldwide
No world economy raised the three red flags necessary to trigger increased U.S. bilateral engagement and possible sanctions to counter unfair currency manipulation through new procedures outlined by the Trade Facilitation and Trade Enforcement Act, according to a Treasury report to Congress on the foreign exchange policies of major U.S. trading partners (here). However, Treasury has created a “Monitoring List,” including China, Japan, Korea, Taiwan, and Germany, which satisfied two of the three criteria.
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Under the customs reauthorization legislation, if a country has (1) a significant trade surplus, (2) a "material" current account surplus, and (3) has engaged in "persistent" intervention in currency markets, the administration must "commence enhanced bilateral engagement” with the country. If the country doesn’t adopt adequate policies to reverse its currency undervaluation and external surpluses within a year, the President must retaliate, including by excluding the country from U.S. government procurement and by taking the currency situation into account when considering free trade agreements.
Treasury analyzed data across 15 years, spanning “dozens” of economies, including all that have had a trade surplus with the U.S. during that period, and which “in the aggregate” represent about 80 percent of global GDP. “Treasury has … concluded that no major trading partner of the United States met the standard of manipulating the rate of exchange between its currency and the United States dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade during the period covered,” the report says.