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 (TFTEA), according to a Treasury report to Congress on the foreign exchange policies of major U.S. trading partners (here). However, Treasury has added to the “Monitoring List" China, Japan, Korea, Taiwan, Germany and Switzerland. President Donald Trump last week said that he wouldn't label China a currency manipulator despite stating during the presidential campaign that it was among his priorities to do so (see 1704130014).
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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's report covered the 12 largest U.S. trading partners, including economic, trade and exchange rate developments for the last six months of 2016, and where data is available, developments through the end of March 2017, the agency said. “Pursuant to the 2015 [TFTEA], Treasury has found in this Report that no major trading partner met all three criteria for the current reporting period," the report says.