Inquiring minds are digging into the 34-page US Treasury report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States.
There are three criteria, all of which much be met, to label a country a currency manipulator. Five countries meet 2 of 3 requirements. China meets only 1 but is still signaled out in the report.
The three conditions are defined in the Trade Facilitation and Trade Enforcement Act of 2015.
- A a significant bilateral trade surplus with the United States is one that is at least $20 billion
- A material current account surplus is one that is at least 3 percent of gross domestic product (GDP)
- Persistent, one-sided intervention occurs when net purchases of foreign currency are conducted repeatedly and total at least 2 percent of an economy’s GDP over a 12-month period
China, Japan, Korea, India, Germany, and Switzerland
- Five major trading partners of the United States met two of the three criteria for enhanced analysis in this Report or in the April 2018 Report.
- One major trading partner, China, constitutes a disproportionate share of the overall U.S. trade deficit.
- Japan, Germany, and Korea have met two of the three criteria in every Report since the April 2016 Report having material current account surpluses combined with significant bilateral trade surpluses with the United States.
- Switzerland met two of the three criteria in every Report between October 2016 and April 2018 – having a material current account surplus and having engaged in persistent, one-sided intervention in foreign exchange markets – and it met one of the three criteria in this Report, a material current account surplus.
- India met two of the three criteria in the April 2018 Report – having a significant bilateral surplus with the United States and having engaged in persistent, one-sided intervention in foreign exchange markets – and it met one of the three criteria in this Report, a significant bilateral surplus with the United States.
- China has met one of the three criteria in every Report since the October 2016 Report, having a significant bilateral trade surplus with the United States, with this surplus accounting for a disproportionate share of the overall U.S. trade deficit. Treasury will closely monitor and assess the economic trends and foreign exchange policies of each of these economies.
Global Current Account Imbalances
Global Current Account Trends
Over the last three years, the majority of the United States’ major trading partners have seen current account imbalances widen – as has the United States – though there are some exceptions. China’s current account surplus has narrowed markedly, though its merchandise trade surplus remains large and researchers have raised questions about measurement issues that could cause the reported current account balance to be understated.
Korea’s surplus has also narrowed somewhat from recent peak levels. But several European economies, as well as Japan and Taiwan, have seen external surpluses grow.
China Exchange Rate
Recent movements in China’s currency have not been in a direction that will help reduce China’s large trade surplus. Since mid-June, the RMB has weakened more than 7 percent versus the dollar and close to 6 percent against the CFETS nominal basket.
China Current Account Balance
Note that China's current account balance is now negative with the whole world even as it soars with the US!
Japan Current Account Balance
Korea Current Account Balance
India Current Account Balance
As with China, India has a current account deficit. Unlike China, the deficit is perpetual.
What About Thailand and Vietnam?
Trump expects bilateral parity. Tariffs cannot fix the fundamental flaw.
Trump is attacking a symptom of the problem, not the problem!
The imbalances all started when Nixon closed the gold window. Credit exploded and did deficits.
Trade imbalances that were once self-correcting no longer are self-correcting.
Mike "Mish" Shedlock