Trade adviser turns on Trump over his China currency U-turn

Trade adviser turns on Trump over his China currency U-turn

China has turned away coal shipments and made more forceful statements in recent weeks in an attempt to cool the ratcheting of tensions in the region. Trump's threat to slap harsh tariffs on Chinese goods has given way to a bid to mend fences with Beijing.

However, the Treasury Department did not name Taiwan as a currency manipulator, with the administration of US President Donald Trump declining to name any major trading partner as a currency manipulator.

Instead, the administration's first twice-yearly currency review singled out China and five other countries as needing to be monitored for their currency practices.

In its report to Congress, the Treasury Department noted that Beijing had intervened in currency markets for about a decade to depress the value of its currency, the renminbi. On the plus side, a strong dollar lowers import prices, and also makes it cheaper for American investors to buy assets overseas. Trump's about-face was notable because of how forceful he was in his insistence as recently as this month that China was a currency manipulator.

Treasury said it will be scrutinising China's trade and currency practices very closely, especially in light of the extremely sizable bilateral trade surplus that China has with the United States.

Treasury avoiding the manipulator label reflects that China's current-account surplus as a share of output is much reduced, and currency intervention now supports yuan strength, according to Bloomberg Intelligence economists Tom Orlik and Justin Jimenez.

Designating a country as a currency manipulator doesn't immediately trigger any penalties, but it is seen by other governments as a provocation. Such tariffs, though, could be overturned in a review by the World Trade Organization.

No countries were determined to have met all three of these criteria, but Japan, South Korea, Taiwan, Germany and Switzerland all met two of them.

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The three are: a significant bilateral trade surplus with the USA; a material current account surplus; and the involvement in persistent one-sided intervention in the foreign exchange market.

In its review of the practices of the other nations, Treasury said Germany, the largest single economy in Europe, should act to encourage stronger domestic demand as a way to reduce its large trade surplus.

China has purchased hardly any American beef since it conditionally lifted an import ban past year that was imposed in 2003 due to a case of mad cow disease in Washington state.

While individual companies are hesitant to criticize China for fear of backlash, critics from US business groups accuse Beijing of unfairly subsidizing domestic firms and restricting foreign investment into much of the world's second-biggest economy.

The declaration also came days after Trump - in a turnabout from his campaign stance - declared in an interview that his administration would not label China a currency manipulator, which could have triggered investigations.

"I explained to the President of China that a trade deal with the U.S. will be far better for them if they solve the North Korean problem!" In a recent interview after meeting China's President Xi Jinping, he said he no longer planned to go ahead with the move.

On his earlier defining of North Atlantic Treaty Organisation as obsolete, Mr. Trump had recently credited member-states with responding positively to his criticism that they were not meeting their pledge to spend 2 percent of their gross national product on defense spending.

That helped to drive down the 10-year U.S. Treasuries yield to 2.200 percent, its lowest level since mid-November from around 2.228 percent on Thursday before a market holiday on Friday. Economists say the US currency could rise further as the Federal Reserve raises interest rates. The reversal by the Treasury department was one of the nearly half-a-dozen instances when Donald Trump or his administration have gone back on his poll campaign promises.

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