Signs point away from Trump labeling China currency manipulator

Thu Apr 6, 2017 5:01pm EDT
 
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By David Lawder

WASHINGTON (Reuters) - U.S. President Donald Trump looks unlikely to formally declare China a currency manipulator next week just days after meeting Chinese President Xi Jinping, foreign exchange policy experts say, leaving a vocal Trump campaign pledge unmet, at least for now.

The U.S. Treasury would have to radically change its definitions of currency manipulation in order to squeeze China into that label for its next report due April 14, said these experts, several of whom contributed to past Treasury analysis of foreign exchange practices.

But over time, the Trump administration may consider changes to the Obama administration's currency definitions as the Treasury gains staff.

"It would be hard to come up with a credible standard that would catch China in the net," said David Dollar, a former U.S. Treasury economic liaison to China who is now a senior fellow at the Washington-based Brookings Institution.

Trump pledged to label China a currency manipulator on the first day of his administration, but so far has refrained.

A trade and customs enforcement law enacted last year set out three criteria for identifying manipulation among major trading partners: a "material" global current account surplus, a "significant" bilateral trade surplus with the United States, and persistent one-way intervention in foreign exchange markets.

The Treasury is required to demand special talks with any country meeting all three thresholds aimed at correcting an undervalued currency, with penalties such as exclusion from U.S. government procurement contracts available after a year.

Under the current Obama-defined thresholds, China only meets one of these criteria, based on its $347 billion goods trade surplus with the United States. Its central bank has for the past two years spent over $1 trillion to prop up the yuan's value - not to push it down. China's current account surplus, an indicator of its global trade balance, was 1.8 percent of GDP in 2016, well below the threshold for action.   Continued...

 
FILE PHOTO: A Chinese 100 yuan banknote is placed under a $100 banknote (top) in this photo illustration taken in Beijing in this November 7, 2010 file photo.   REUTERS/Petar Kujundzic/File Photo