US open to change in currency test amid tensions with China
The move could give US President Donald Trump the chance to officially brand China a foreign exchange-rate manipulator
Washington: Treasury secretary Steven Mnuchin is open to changing how the US determines which nations are gaming their currencies, a move that could give President Donald Trump the chance to officially brand China a foreign exchange-rate manipulator as he seeks leverage to redefine trade terms between the world’s largest economies.
One method Mnuchin’s considering: Use a 1988 trade act with a broad definition of currency manipulation to designate a country a manipulator, even if the label isn’t warranted by specific tests under a 2015 law, he said. The other would be to change the criteria that help establish whether a country is engaging in competitive devaluation of its currency, according to Mnuchin.
Treasury applies three tests to measure whether a country should be labelled a currency manipulator. The framework of the criteria is provided by Congress, but the specific thresholds in the tests are at Treasury’s discretion.
“We may at some point look at whether the tests should be changed,” Mnuchin said Sunday in an interview in Jerusalem, the first stop of a six-country tour of the Middle East this week. “We always look at these things.”
While Mnuchin refrained from labelling China a currency manipulator in a semi-annual report released last week, averting an escalation of the trade war, the report was critical of China, highlighting US concerns about the country’s bilateral trade surplus. The 34-page report also said the US was “deeply disappointed” that China doesn’t disclose its currency interventions.
“It was stronger in the language, and that was intended,” Mnuchin said.
One issue last week’s report didn’t address is the strengthening dollar’s role in contributing to the US current-account deficit. A strong US economy is driving the Federal Reserve to raise interest rates, a tightening campaign that has pushed up the dollar and weighed down emerging-market currencies. The Bloomberg Dollar Spot Index has climbed 6.7% since mid-April amid rate increases and strong growth, spurred in part by expansive fiscal policy.
Mnuchin on Sunday acknowledged that “there are obviously economic issues” behind the renminbi’s weakness. The yuan has dropped about 10% against the dollar in the past six months as China’s economic growth slows, a move Mnuchin raised in a meeting with People’s Bank of China governor Yi Gang in Bali, Indonesia earlier this month.
“The governor did make clear to me in our meetings that it was not their objective to see their currency depreciate more,” Mnuchin said.
As a candidate, Trump vowed to label China a currency manipulator on “Day One” of his administration, which he has yet to do officially. While Mnuchin’s semi-annual reports have consistently found China to warrant close monitoring but not a formal designation as a currency manipulator, Trump has tweeted to the contrary as recently as July. The US hasn’t labelled any nation a currency manipulator since 1994.
Congress’s criteria to assess if a country is interfering in its currency are: A minimum $20 billion trade surplus with the US, a current account surplus in excess of 3% of gross domestic product, and repeated intervention in currency markets.
This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.
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