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.

Conditions

  1. A a significant bilateral trade surplus with the United States is one that is at least $20 billion
  2. A material current account surplus is one that is at least 3 percent of gross domestic product (GDP)
  3. 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

Monitor List

China, Japan, Korea, India, Germany, and Switzerland

Report Findings

  • 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

Image placeholder title

Global Current Account Trends

Image placeholder title

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.

Currency Reserves

Image placeholder title

China Exchange Rate

Image placeholder title

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.

Intervention Down

Image placeholder title

China Current Account Balance

Image placeholder title

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

Image placeholder title

Korea Current Account Balance

Image placeholder title

India Current Account Balance

Image placeholder title

As with China, India has a current account deficit. Unlike China, the deficit is perpetual.

What About Thailand and Vietnam?

Fundamental Flaw

Trump expects bilateral parity. Tariffs cannot fix the fundamental flaw.

Image placeholder title

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

US Treasury Declares China a Currency Manipulator Under Orders From Trump

It's now official. The US Treasury says China is a currency manipulator. What's next?

US Treasury Concludes "No Currency Manipulators", Watch List Expands to 9

The Treasury has three requirements for identifying currency manipulators. Seven countries meet two criteria.

China Halts All US Ag Imports, Trump Accuses China of Currency Manipulation

It didn't take long for China to retaliate against Trump's trade war escalation. It did so by halting all US ag imports.

China Says US is Not Sincere and "Import Tariff Cuts Not a Concession to Trump"

Trump thanked China's concessions in a Tweet. In response, Xi essentially slapped Trump in the face.

Is Germany a Currency Manipulator? China? Arguably Yes, Under Bill Obama Signed.

One problem in labeling a “currency manipulator” has been the lack of a definition of the term.

China's Global Trade Surplus Expected to Go Negative, US Not the Beneficiary

China's trade surplus with the rest of the world is shrinking at a fast pace, just not with the US.

China Ready to Resume Talks With US: OK, But Under What Conditions?

A headline in the Wall Street Journal caught my eye today. It claims China is willing to talk with Trump.

Currency War or Trade War? Two-Edged Dilemma for US and China

Does China (Trump) want to fight a trade war or a currency war?

Iran Replaces China as Top Importer of US Soybeans

Thanks to Trump's tariffs, China all but stopped importing US soybeans. Iran picked up much of the volume, cheaply too!