Published: Mon, April 17, 2017
Global Media | By Garry Long

Trump's reversals come after crash course on the issues

As expected after President Trump's recent comments, the U.S. Treasury has decided NOT to brand China a currency manipulator.

Trump heaped criticism on China during his campaign saying they deliberately undervalued their currency, the yuan, to gain an advantage in global trade and create a wide trade deficit with the United States.

Instead, the first currency review of the Trump administration singled out China and five other countries as needing to be monitored for their currency practices.

China was the last nation to be named a currency manipulator by the US.

"Additionally, U.S. Department of the Treasury established a "Monitoring List" of major trading partners that merit close attention to their currency practices".

The other countries on the list are China, Japan, South Korea, Germany and Switzerland, with no country being identified as manipulating its exchange rate to obtain unfair trading advantages.

The report said that China remained on the list because of its "disproportionate share of the overall USA 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.

However, in its report the Treasury alleged that China has a long track record of engaging in persistent, large- scale, one-way foreign exchange intervention, doing so for roughly a decade to resist renminbi (RMB) appreciation even as its trade and current account surpluses soared.

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"I think the United States chose to forego (labeling China a currency manipulator) this time because it wants China's cooperation on North Korea", said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.

"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.

This was the Trump administration's first release of the twice-yearly report, which evaluates the foreign exchange policies of major USA trading partners.

Taiwan's Central Bank said Saturday that the results have been anticipated by the bank so the latest US currency report is unlikely to impose any material adverse impact on the local foreign exchange market.

The accompanying report used similar language to describe China's past interventions in exchange markets - a shift to a more forceful tone from prior reports issued under the Obama administration, but not one with immediate practical consequences. He publicly retreated from that position after meeting with Chinese President Xi Jinping in Florida last weekend.

The U.S. Treasury releases the Report on Foreign Exchange Policies of Major Trading Partners of the United States in a bid to implement the new provisions of the Trade Facilitation and Trade Enforcement Act of 2015, also known as the Customs Bill.

The report contains an implicit threat that unless China gives U.S. exporters greater market access and further rebalances the economy, the United States could act to rectify the trade imbalance, according to Eswar Prasad, former head of the International Monetary Funds China division.

The report also called on Japan to do more "to revive domestic demand and combat low inflation while avoiding a return to export-led growth".

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