Published: Mon, April 17, 2017
Money | By Oscar Reynolds

Trump admin. declines to brand China a currency manipulator

Trump admin. declines to brand China a currency manipulator

Geoffrey Garrett, an American political economist, said U.S. President Donald Trump was right not to label China as "currency manipulator", a term reflecting one of several misconceptions from the West about the Chinese economy.

The department is required by law to report to Congress twice a year on whether America's major trading partners are gaming their currencies.

Trump's Treasury Department used the same standards for determining currency manipulation as those of the previous administration under President Barack Obama.

That said, China remained on a "Monitoring List" of major trading partners that merit close attention to their currency practices.

China now only meets one of the criteria, according to the report: a large trade surplus with the US.

Running trade deficits year-after-year and accumulating large external debts in USA dollars would be a serious problem for most countries, but it is not a problem for the United States, economists say, because the U.S. financial system creates the dollar - and the dollar is the global reserve currency as well as the main global trade currency.

"Treasury estimates that during 2016 Korea was a net seller of foreign exchange of about $6.6 billion (0.5 percent of GDP)".

The Korea International Trade Association welcomed the United States decision not to label South Korea a currency manipulator, calling it a "rational outcome".

Trump after meeting with insurance chief executives after being inaugurated: "Now, I have to tell you, it's an unbelievably complex subject, " he said while addressing Republican governors.

The Treasury also warned that it will scrutinize China's trade and currency practices very closely and called for faster opening of China's economy to United States goods and services and a shift away from exports to more domestic consumption. If the same goods - iPhones, say - that were previously produced in China or Mexico were produced in the U.S. instead, they would very likely be more expensive, and perhaps many fewer would be produced and sold.

"In fact, the People's Bank of China has been trying hard to keep up the value of the Chinese RMB in the past few years", Garrett said, rebutting the argument prevalent among American publics that Beijing has been manipulating its currency and driving the value down.

The report shows the Trump administration is taking an approach to foreign exchange based on data rather than politics, said Nathan Sheets, a former U.S. Treasury under secretary for global affairs during the Obama administration. U.S. officials said the administration settled on a policy to emphasise increasing pressure on Pyongyang with the help of China, North Korea's only major ally, instead of military options or trying to overthrow Kim Jong-un's regime.

The report came after China data showed its surplus with the United States was almost unchanged in the first quarter compared to a year earlier at US$49.6 billion (RM218 billion), and cited China's market protection as an impediment to a balanced trade relationship.

In an interview Wednesday, Trump had indicated that he was backing away from his campaign pledge because he felt China hadn't been manipulating its currency in recent months and because labeling it as such now could jeopardize Beijing's co-operation in confronting North Korea. Washington has not branded any country a currency manipulator since 1994.

The US president's son also said his father would not risk "the safety. of the world for a lunatic who is in power".

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