In its last semi-annual currency report under the Biden administration, the U.S. Treasury Department said that it could not find any major U.S. trading partner during the year ending June 30 to be manipulating its currency. That report comes out today, just days before President-elect Donald Trump takes office and responsibility for overseeing foreign exchange practices moves to his administration.
U.S. Treasury Finds No Currency Manipulation by Major Trading Partners
Said the Biden administration’s final currency report, unlike any previous year, not one of the major trading partners of the United States met all three criteria for being considered a “currency manipulator” under U.S. law: a trade surplus of at least $15 billion, global current account surplus above 3 percent of GDP, and persistent foreign exchange intervention.
The Treasury Department is expected to present its conclusion after years of growing attention to the matter. In his last term, President Donald Trump had termed Vietnam and Switzerland as currency manipulators in December 2020, holding both countries accountable for interfering in their respective markets to make their currencies depreciate.
Foreign Exchange Practices Shift Under Biden Administration
For most of the past four years, interventions by foreign governments in their currency markets have been directed toward strengthening their currencies against the U.S. dollar. This, too, was largely a concern over inflation and the global recovery of the economy.
The Trump administration had, in turn, accused some countries of deliberately weakening their currencies to gain trade advantages, and this undermined U.S. competitiveness. Such rhetoric has precipitated many controversies on the global trade stage where, for example, U.S. officials have charged China and Japan with currency malpractices.
No New Currency Manipulators Identified
In its latest report, the U.S. Treasury said that during the 12-month period ending June 30, no significant trading partners satisfied the requirements for “enhanced analysis,” a process that might be followed by intense diplomatic consultations and, in some instances, trade sanctions.
The Treasury still continued to observe a list of countries for potential currency intervention that could harm the U.S. economy. The countries comprised China, Japan, South Korea, Taiwan, Singapore, Vietnam, and Germany.
Countries in “Monitoring List” Include China, Japan, South Korea
Among the countries included in the monitoring list, China continued to be at the forefront, given the importance of bilateral trade surplus against the U.S. and its non-transparency about foreign exchange policies. While China’s current account balance contracted by a small degree in this period, rising volumes with falling export prices over the same period have attracted apprehensions among U.S. officials.
China’s reliance on foreign demand to spur its economic growth is the reason it remains included in the list, according to the Treasury, since that would also disrupt international trade.
“While the reported current account surplus is not material, the rapidly growing export volumes amid falling prices will likely have large impacts on China’s trading partners,” the report stated.
South Korea Added to Monitoring List
South Korea was included on this year’s monitoring list following the country’s large global current account surplus and significant trade deficit with the US. Though such a step would be seen as a reflection of concern over South Korea’s foreign exchange practices, South Korea was not found to directly be manipulating its currency.
Treasury Demands China Increase Transparency
The U.S. Treasury is not for the third time making its call for greater transparency in China’s foreign exchange intervention practices. As it closely monitored the country’s currency policies, such transparency was echoed in the Treasury report on how opaque the nature of the foreign exchange market in China was, a haunting and persistent issue topping those issues mishandled between the United States and China in trade deals.
Global Trade Impact
In so doing, the Treasury’s semi-annual report shows how, in terms of foreign exchange policies, transparency and equality will remain important factors. It further illustrates how the disintegration of the free market because of some economic events such as currency interventions creates artificial distortions in global trade.
The report by the Biden administration will soon be up and out, and the eyes of most people will focus on how the Trump administration will handle such issues. Trump has assured his citizens that he will move aggressively on trade and tariffs, “especially against China, where he said he would levy tariffs on at least 60% of Chinese imports and 10%-20% of other imports.”
Economic News from the Report
While no new currency manipulators were identified, the report will continue to maintain an emphasis on global imbalances in trade and on the need for foreign exchange market reform. Officials at the treasury note that currency practice must not run counter to the principles of fair trade-that is, as countries face economic fallout from COVID-19.
The monitoring list probably will continue as a main available tool for future administrations to deal with problems caused by currency activities as they enter negotiations with U.S. trading partners.
What’s Next for U.S. Foreign Exchange Policy?
This report opens the door for further foreign currency scrutiny, especially on the U.S. trade deficit and the strengthening dollar. Trump, now on the horizon, is yet to be seen how the latter will address allegations of manipulation in foreign exchange, whether his administration will push stronger sanctions or tariffs in response.
