China, Germany must do more to reduce trade surpluses

Phillip Butler
April 18, 2017

The last report released in October found that six countries - China, Japan, Korea, Germany, Taiwan and Switzerland - met two of the three criteria.

Treasury hasn't branded any nation a currency manipulator — a highly charged assertion — since the Clinton administration labeled China as such in 1994.

"China has a long track record of engaging in persistent, large-scale, one-way foreign exchange intervention", the Treasury Department said in its semiannual report on the foreign-exchange policies of major US trade partners.

Over the last decade, China's effective exchange rate has appreciated more than any other major currency, rising a total of more than 40 percent, said David Dollar, a senior fellow at the Brookings Institution.

Previous administrations have used three factors to determine if a country is a currency manipulator - a trade surplus with the USA of more than $20 billion; a current-account surplus totaling more than 3% of its gross domestic product; and repeatedly devaluing its currency by buying foreign assets that equals to 2% of output a year.

The report came after China data showed its surplus with the United States was almost unchanged in the first quarter compared to a year earlier at $49.6 billion, and cited China's market protection as an impediment to a balanced trade relationship.


"An essential component of this administration's strategy is to ensure that American workers and companies face a level playing field when competing internationally", Treasury Secretary Steven Mnuchin said in a statement. The designation requires intensive talks between the United States and the designated country and can lead to penalty tariffs imposed by the United States.

Trump has projected a transactional attitude toward China, saying in interviews and remarks that he planned to use trade as a negotiating tool for Xi's cooperation on North Korea.

"China now has an extremely large and persistent bilateral trade surplus with the United States, which underscores the need for further opening of the Chinese economy to American goods and services", as well as quicker reforms to boost household consumption, according to the Treasury report.

The report also criticized Japan for failing to do more to stimulate domestic demand and thereby increase sales of US and other foreign goods. But on Wednesday, he backed away from that promise in a Wall Street Journal interview.

Now, China needs to show that its lack of intervention in the currency markets "to resist appreciation" over the past three years is a "durable" policy by allowing the yuan to strengthen "once appreciation pressures resume", the Treasury said. The administration has also put forward a draft proposal on renegotiating the North American Free Trade Agreement with Mexico and Canada that dropped some of the tougher positions Trump took during the campaign.

Other reports by Ligue1talk

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