US finds no currency manipulation by major trading partners but adds South Korea to monitoring list

WASHINGTON - No major US trading partner manipulated its currency in the year to June 30, the Treasury Department said on Nov 14 in the Biden administration’s final semi-annual currency report before turning over policing of foreign exchange practices

to President-elect Donald Trump.

Trump, who has frequently complained that the strong dollar is eroding US trade competitiveness, ended his first term in the White House with Treasury declarations of Vietnam and Switzerland as currency manipulators in December 2020 over their market interventions to weaken the value of their currencies.

Trump also directed then Treasury Secretary Steven Mnuchin to label China a currency manipulator in August 2019, a move made at the height of US-China trade tensions.

The Treasury Department dropped the designation in January 2020 as Chinese officials arrived in Washington to sign a trade deal with the United States.

For much of the past four years, however, foreign exchange interventions by US trading partners have moved in the opposite direction, to push up the values of their currencies against the dollar, mainly to fight inflation.

President Joe Biden’s term will end with the Treasury Department having made no manipulation declarations, but frequently raising concerns about China’s foreign exchange practices in its semi-annual currency reports.

The department’s latest analysis found that for the four quarters ended June 30, no major US trading partners met all three criteria for “enhanced analysis” of their currency practices.

That process leads to intensive consultations and can ultimately produce trade sanctions.

The economies on the Treasury’s monitoring list were mostly unchanged from the previous release in June, and include China, Korea, Japan, Germany, Singapore, Taiwan and Vietnam.

Malaysia, which was included in June’s report, was dropped in the latest one.

South Korea was added to the list due to its large global current account surplus and its sizable goods and services trade deficit with the US.

Countries that meet two of the criteria – a trade surplus with the US of at least US$15 billion (S$20.1 billion), a global account surplus above 3 per cent of gross domestic product and persistent, one-way net foreign exchange purchases – are automatically added to the list.

China

China was kept on the monitoring list because of its large trade surplus with the US and because of a lack of transparency surrounding its foreign exchange policies, the Treasury Department said.

The report noted that despite a slight decline in China’s current account balance to 1.2 per cent of GDP, its export volumes had risen sharply, indicating a decline in export prices.

It said that trend continued beyond the monitoring period to the third quarter of 2024.

“Partially as a result of weak domestic demand, China has increasingly relied on foreign demand to drive growth this year, with net exports contributing an unusually high share (43 per cent) of real growth in the third quarter,” the report said. “Thus, while the reported current account surplus is not material, the rapidly growing export volumes amid falling prices will likely have large impacts on China’s trading partners.”

The report also reiterated a call for more transparency in China’s foreign exchange practices, including use of a daily fix to prevent weakening of the renminbi without official explanation.

It said these policies “make China an outlier among major economies and warrant Treasury’s close monitoring”.

Trump has vowed to impose tariffs of at least 60 per cent on imported Chinese goods, regardless of Beijing’s currency practices, and wants a 10 per cent to 20 per cent duty on imports from the rest of the world.

The currency report said Japan was kept on the monitoring list because of its US$65 billion trade surplus with the US during the review period, as well as an increase in its global current account surplus to 4.2 per cent of GDP from 2 per cent a year earlier.

The Treasury Department said Japan’s Ministry of Finance had intervened three times since April to shore up the yen’s value: on April 29, May 1 and July 11-12.

It noted that Japan’s actions were transparent, but reiterated that intervention without prior consultations “should be reserved only for very exceptional circumstances”. REUTERS