By Denny Gulino
THE TREASURY DEPARTMENT (MaceNews) – The designation of China as a currency manipulator, imposed in August on President Trump’s order but not backed up by the IMF, was removed late Monday as expected both because of the imminent signing of a “Phase One” trade pact and because Fox News earlier broke the story.
More insult than real injury, the designation supposedly carried with it the requirement of intensified talks and increased transparency though because the designation was under the authority of a different part of the law, not the usual template, few experts seemed to be sure what the designation meant in practice.
President Trump had ordered the designation apart from the government’s semiannual currency report, the usual designation mechanism, and the Treasury Department had followed through even before China’s renminbi momentarily diverged from its more typical relationship with the dollar to any great extent in September.
The Treasury Department gave as its rationale for lifting the designation that, “Intensive trade and currency negotiations between the United States and China over the last few months resulted in a Phase One agreement that requires structural reforms and other changes to China’s economic and trade regime in several key areas, including currency and foreign exchange issues.”
The department continued, “China has made enforceable commitments to refrain from competitive devaluation and not target its exchange rate for competitive purposes. China has also agreed to publish relevant information related to exchange rates and external balances
“Meanwhile, after depreciating as far as 7.18 RMB per U.S. dollar in early September, the RMB subsequently appreciated in October and is currently trading at about 6.93 RMB per dollar. In this context, Treasury has determined that China should no longer be designated as a currency manipulator at this time.”
The report did not say whether China had insisted the designation had to be removed as a condition of signing the trade pact.
While removing the designation, Treasury included China in a list of 10 nations it is watching closely because of currency practices that allegedly border on manipulation. The other nine are: Germany, Ireland, Italy, Japan, Korea, Malaysia, Singapore, Switzerland, and Vietnam.
In the semiannual foreign exchange report published Friday the Treasury Department noted that other developed countries have long pledged not to use currencies as a trade weapon. Yet President Trump has repeatedly pressed the Federal Reserve to lower interest rates precisely to make U.S. goods more internationally competitive through a weakening of the dollar.
Said the report, “Treasury continues to press other economies to uphold the exchange rate commitments they have made in the G-20, the G-7, and the IMF.”
Those commitments are that “strong fundamentals, sound policies, and a resilient international monetary system are essential to the stability of exchange rates, contributing to strong and sustainable growth and investment.” The report added that “G-20 members have also committed to refrain from competitive devaluations and not target exchange rates for competitive purposes” without referring to Trump’s efforts to weaken the dollar to help U.S. manufacturing exports.
The report said Treasury remains “disturbed” by the “excess savings” that could be invested elsewhere to boost global growth.
“Subdued real interest rates across the global economy are a symptom of substantial excess saving that is not being productively employed within the domestic economies of Germany, the Netherlands, China, and other major economies,” it said.
“In order to achieve stronger and more balanced global growth, key economies that have maintained large and persistent external surpluses must pursue reforms that will revitalize domestically driven growth, create productive opportunities for investment, and spark private sector-led growth.”