Currency Manipulation Report by U.S. Treasury Department

By David Lawder
WASHINGTON (Reuters) – No major U.S. trading partner manipulated its currency in the year ending June 30, as stated in the Biden administration's final currency report before President-elect Donald Trump takes over foreign exchange oversight.

Trump, who often criticized the strong dollar for harming U.S. trade, concluded his term with Treasury declaring Vietnam and Switzerland as currency manipulators in December 2020 due to their interventions aimed at weakening their currencies.

Previously, Trump directed then-Treasury Secretary Steven Mnuchin to label China a currency manipulator in August 2019 amid heightened U.S.-China trade tensions; this designation was dropped in January 2020 as China and the U.S. signed a trade deal.

For most of the last four years, foreign interventions by U.S. partners have primarily sought to strengthen their currencies against the dollar to combat inflation. President Joe Biden's term concludes with no manipulation declarations, although the Treasury consistently expressed concerns regarding China's foreign exchange practices.

The latest analysis revealed that, for the four quarters ending June 30, no major trading partners met all three criteria necessary for 'enhanced analysis' of their currency practices, which could result in trade sanctions. China, Japan, South Korea, Taiwan, Singapore, Vietnam, and Germany remain on the Treasury's 'monitoring list' for increased scrutiny. Malaysia was removed from this list while South Korea was added due to its significant trade surplus and goods/services deficit with the U.S.

Countries meeting two criteria— a trade surplus with the U.S. of at least $15 billion, a global account surplus above 3% of GDP, and persistent net foreign exchange purchases— are automatically included on the list.

China Discrepancies

China remains on the monitoring list due to its large trade surplus with the U.S. and a lack of transparency in its foreign exchange policies. Despite a slight decline in the current account balance to 1.2% of GDP, China's export volumes have surged, signaling a decrease in export prices. This trend is expected to continue into the third quarter of 2024.

“Due to weak domestic demand, China has increasingly relied on foreign demand to boost growth, with net exports contributing significantly (43%) to real growth in the third quarter,” the report states. While the current account surplus is minor, the rapidly rising export volumes amidst falling prices are anticipated to impact China's trade partners significantly.

The report urges for greater transparency in China's foreign exchange practices, emphasizing the use of a daily fix to prevent yuan depreciation without sufficient explanation. These practices make China an anomaly among major economies, necessitating close monitoring by the Treasury.

Trump plans to impose tariffs of at least 60% on imported Chinese goods irrespective of currency practices, alongside a 10%-20% duty on imports from other countries.

Japan continues on the monitoring list due to its $65 billion trade surplus with the U.S. during the review period and a rise in its global current account surplus to 4.2% of GDP. The Treasury noted that Japan's Ministry of Finance intervened three times since April to support the yen's value. While transparent, the report reiterated that interventions should be reserved for exceptional situations and conducted with prior consultations.