US calls Switzerland, Vietnam currency manipulators in Trump trade shot

VIDEO: REUTERS

WASHINGTON (REUTERS) – The Trump administration labelled Switzerland and Vietnam currency manipulators on Wednesday (Dec 16), in another parting shot at trading partners that could complicate matters for US President-elect Joe Biden’s incoming team.

In a long-overdue report, the US Treasury also added India, Thailand and Taiwan to a list of countries it says may be deliberately devaluing their currencies against the dollar. 

The Covid-19 pandemic has skewed trade flows and widened US deficits with trading partners, an irritant to outgoing President Donald Trump, who won office four years ago partly on a promise to close the US trade gap.

The Swiss National Bank said it does not manipulate its currency and “remains willing to intervene more strongly in the foreign exchange market”. 

Vietnam’s central bank said it would work with US authorities to ensure a “harmonious and fair” trade relationship. 

“Vietnam’s foreign exchange rate policy has for years been managed in a way to contain inflation, ensure macro stability and not to create unfair trade advantage,” the State Bank of Vietnam said in a statement. 

Thailand’s central bank said on Thursday it did not see a big impact on foreign trade and investment by being put on the US currency watch list, nor should it impede its ability to conduct macroeconomic policies to safeguard domestic stability. 

The Bank of Thailand said it had conducted two-way intervention only to ride out baht volatility and had no intention to do use the exchange rate to gain an unfair trade advantage and competitiveness over trading partners, Assistant Governor Chantavarn Sucharitakul said in a statement

“At this stage, the assessment is not expected to have a material impact on Thailand’s international trade, as well as the prospect for foreign direct investment into Thailand.  Similarly, such assessment does not impede the ability of the BOT to fulfil its mandate on macroeconomic policies to safeguard domestic stability,” she said. 

The BOT has been in close dialogue with the US administration to foster an understanding of Thailand’s macroeconomic and financial conditions, and had also reiterated its commitment to exchange rate flexibility, she said.

The manipulator labels will ramp up pressure on Biden before he takes over, Per Hammered, chief emerging markets strategist at SEB in Stockholm, said.  “You set the agenda and force him (Biden) into positions that he will have to get out of somehow,” Hammered said.

A US Treasury official said Biden’s transition team had not been briefed, adding: “They are not implicated in this.” 

US Treasury Secretary nominee Janet Yellen could alter the findings in her first currency report, which is due in April. 

A spokesman for Biden’s team did not respond to a request for comment. 

The President-elect’s team has been critical of other moves by US Treasury Secretary Steven Mnuchin, including ending some Federal Reserve pandemic lending programs.  

Mnuchin said in a statement that the Treasury “has taken a strong step today to safeguard economic growth and opportunity for American workers and businesses.”

China, labelled by Mnuchin as a currency manipulator in August 2019 at the height of trade tensions, was kept on the Treasury’s monitoring list due to its high trade surplus with the United States.

Mnuchin lifted the designation in January, two days before the world’s two largest economies signed a “Phase 1” trade deal.

Trade advantage

Countries must at least have a US$20 billion-plus (S$26 billion) bilateral trade surplus with the United States, foreign currency intervention exceeding 2 per cent of gross domestic product and a global current account surplus exceeding 2 per cent of GDP to be labelled a manipulator.

Vietnam and Switzerland far exceeded these criteria, with foreign exchange interventions of 5 per cent and 14 per cent of GDP respectively.

The report said that at least part of Vietnam’s intervention was aimed at pushing down the dong for a trade advantage, while at least part of Switzerland’s action was aimed at pushing down the Swiss franc to prevent effective balance of payments adjustments.

The Treasury said Switzerland’s foreign exchange intervention totalled 14 per cent of GDP.

Vietnam, which has seen foreign investment by companies seeking to avoid US tariffs on Chinese goods, saw intervention of more than 5 per cent of its GDP, it added. 

Mark Sobel, a former Treasury and International Monetary Fund (IMF) official, said the manipulator designations were “mechanistic” interpretations of the thresholds that ignored subtleties and extenuating circumstances.

These include safe-haven inflows into Switzerland’s currency due to the pandemic and a rush of foreign investment into Vietnam in 2019, fuelled by US tariffs on Chinese goods.

The IMF has forecast that Vietnam’s current account surplus will fall below the 2 per cent of GDP threshold for 2020.

“They’re missing some more obvious cases of harmful currency practices,” said Sobel, adding that Taiwan and Thailand which narrowly missed the intervention thresholds “have been intervening heavily for years.” 

The Treasury official said the United States will seek negotiations with Switzerland and Vietnam to bring them back below the manipulation thresholds and declined to speculate on whether the process could lead to US tariffs on their goods.

Among remedies specified in US laws governing the currency report are limiting offending countries’ access to government procurement contracts and to development finance.

Vietnam could be hit with tariffs under a separate investigation by the US Trade Representative’s office now under way into the causes of an undervalued dong. The Treasury findings could influence this probe and some in the business community fear that Trump may move quickly on it.

The label briefly lifted the value of the Swiss franc against the dollar. Forex strategists said the move may make it slightly more difficult for the SNB to intervene, but the easing of the coronavirus pandemic would reduce upward pressure on the franc.

The Treasury also said its “monitoring list” of countries that meet some of the criteria has hit 10, with the additions of Taiwan, Thailand and India. Others remaining on the list are China, Japan, Korea, Germany, Italy, Singapore and Malaysia.

The report said that India and Singapore had intervened in the foreign exchange market in an “asymmetric manner” but did not meet other requirements to warrant a manipulator label.

  • US Treasury tags Switzerland and Vietnam currency manipulators

  • The US Treasury labelled Switzerland and Vietnam as currency manipulators on Wednesday (Dec 16) and added three new names to a watch list of countries it says it suspects of taking measures to devalue their currencies against the dollar.

    The designation, which can lead to sanctions, is based on three criteria: A US$20 billion-plus (S$26 billion) trade surplus with the United States, currency intervention exceeding 2 per cent of gross domestic product and a current account surplus exceeding 2 per cent of GDP.

    The Treasury also said its “monitoring list” of countries that meet some of the criteria has hit 10, with the additions of Taiwan, Thailand and India.

    Others remaining on the list include China, Japan, Korea, Germany, Italy, Singapore and Malaysia.

    The report also said that India and Singapore had also intervened in the foreign exchange market in a “sustained, asymmetric manner” but did not meet other requirements to warrant designation as manipulators.

  • Switzerland

    * Switzerland had already been on the monitoring list and ran a trade surplus with the United States of US$21.8 billion last year, according to the US trade representative, and had a current account surplus about 11 per cent of gross domestic product.

    * The Swiss National Bank (SNB) spent 90 billion Swiss francs (S$135 billion) in the first half of 2020 to slow down the currency's gains as investors have sought safe havens

    * That is already roughly 13 per cent of last year's gross domestic product, way above Washington's 2 per cent threshold.

    * The SNB has long argued it is not trying to weaken the franc to gain a trade advantage, but rather to head off deflation.

    * On Wednesday, the Swiss National Bank said it would not alter its monetary policy despite Switzerland's being named a currency manipulator, adding the central bank remained willing to act aggressively in foreign exchange markets.

    Vietnam

    * Vietnam's trade surplus with the US widened to US$57 billion over the first 11 months of this year, up from US$42 billion in the same period last year, according to Vietnam's customs data.

    * It had a current account surplus at 5 per cent of GDP last year, according to the World Bank.

    * The dong is up slightly for the year, has gained 2.2 per cent from March lows and is up 0.2 per cent in the past two months.

    * Vietnam says it does not devalue its currency to generate an unfair trade advantage, however it is on Washington's watchlist and was hit with tariffs over the issue in November.

    * The US Treasury's semi-annual currency manipulation report said that at least part of Vietnam's foreign exchange intervention was aimed at pushing down the dong for a trade advantage.

    * Vietnam's trade ministry declined to comment and referred questions to the foreign ministry.

    Taiwan

    * Taiwan's trade surplus with the United States hit US$23 billion last year and the current account surplus was 10.5 per cent of gross domestic product, both well above Washington's thresholds.

    * Surging exports have put upward pressure on the Taiwan dollar, which is up 6.3 per cent this year and at a 23-year high.

    * Taiwan bought US$3.9 billion US dollars in the first half of 2020 to tame the currency's gains.

    * Analysts at Bank of America say accumulated FX intervention is above the 2 per cent Treasury threshold

    * The island was last formally labelled a currency manipulator by the United States in December 1992, but was later put on the US Treasury monitoring list in 2016 and 2017.

    Thailand

    * Current account surplus was 7 per cent of GDP in 2019, according to the Bank of Thailand, and it ran a trade surplus of US$20.1 billion according to the US Trade Representative.

    * A weakening dollar, domestic gold selling and investment flows have pushed the baht up by 10 per cent against the dollar since late March to hit a one-year high.

    * Bank of Thailand says it has been intervening in the foreign exchange market to restrain the baht, and Bank of America analysts say it has spent more than double Washington's threshold.

    Others

    Germany, India, Italy, Japan, Malaysia, Singapore and South Korea have all violated two of the three US Treasury criteria, according to a report published by US think-tank, the Council on Foreign Relations.

    * Bank of America analysts noted that currency intervention in India and Singapore, as well as Thailand and Taiwan, has been particularly aggressive this year.

    * Wednesday's report also said that India and Singapore had intervened in the foreign exchange market in a "sustained, asymmetric manner", but did not meet other requirements to warrant designation as manipulators.

    What next?

    * There is no automatic punishment with a currency manipulator label, though US law requires Washington to demand negotiations with designated countries.

    * Diplomatically, labelling US allies as currency manipulators in the middle of a pandemic could be uncomfortable, particularly in Asia where warming ties with countries such as Vietnam have been strategically important.