So far Trump is playing it straight down the line. His much touted backtracking on Chinese currency manipulation is not quite as straight forward as the MSM makes it out to be. Big surprise.
On April 14, the U.S. Treasury Department released its semiannual report on the currency exchange policies of major U.S. trading partners. The report found that currently no country’s policies could be considered manipulative within the context of both current definitions and past practices. However the US kept China, Japan, Germany, Taiwan, South Korea and Switzerland on the list of countries to monitor. The current reported findings are in contrast to Trump’s campaign rhetoric on China, but they are in line with current economic thinking and legal definitions regarding currency manipulation.
Trump’s administration is being constrained by the current legal definitions, case law and by past practice criteria — bilateral trade balances, current account balances and currency intervention policies — used in previous reports to determine which countries should be monitored. Nothing has changed so it’s no wonder the US bureaucracy had the same opinions that they’ve held for the past 8 years.
Trump promised to label China a currency manipulator on his first day in office because in the 2016 report China met two of the three criteria needed to be labeled a currency manipulator. In the recent 2017 report however, China met only one criteria. To keep pressure on China, Trump will now also monitor countries that account for a disproportionate percentage of the overall U.S. trade deficit.
While the 2017 report conclusions are similar, the latest report takes a markedly different tone than last year’s. The two 2016 reports were more functional in tone, while this first 2017 report dwelled on extraneous information such as China’s history of manipulation, and there has been quite a lot of that over the past decade.
Though Trump may have pulled back from some of his election rhetoric positions, the 2017 report still represents a more aggressive document than previous reports. Trump’s first report on currency policies does not preclude more assertive trade actions being taken in the months ahead. In the future, the new focus on monitoring countries with a large proportion of the U.S. trade deficit, that could lead to investigations into other countries that do not necessarily meet any of the three criteria for being labeled a currency manipulator but are in fact manipulating their currencies in other ways. Manipulation is part art and part science (definitions). Germany, South Korea Japan and others are skilled in covering up rampant currency manipulation by burying it in a wilderness of regulation and thousands of purposely manipulative complex laws. Nailing a country with currency manipulation is akin to hitting a bullet with a bullet. Often pressuring a probable malefactor is enough to ‘modify’ the action sufficiently to allow one to ‘live with it’ and to trade it off for a gain somewhere else …. like Chinese, inspired North Korea policy initiatives.