On April 14, the U.S. Treasury Department released its semiannual report on the currency exchange policies of major U.S. trading partners. The report found that no country's policies could be considered manipulative, but it kept China, Japan, Germany, Taiwan, South Korea and Switzerland on the list of countries to monitor. The findings are in stark contrast to President Donald Trump's campaign rhetoric on China, but they are in line with current economic thinking.
It is not surprising that the report is similar to those released by the previous administration, given the Trump administration was clearly constrained by the law and by past practice. For example, the findings are based on the same criteria — bilateral trade balances, current account balances and currency intervention policies — used in previous reports to determine which countries should be monitored and so yielded many of the same results.
During Trump's presidential campaign, he promised to label China a currency manipulator on his first day in office. In fact, even though in the last report China met two of the three criteria needed to be labeled a currency manipulator, this time it met only one. To keep pressure on China, the Trump administration will now also monitor countries that account for a disproportionate percentage of the overall U.S. trade deficit.
The contents of the report are not a complete surprise. U.S. Treasury Secretary Steve Mnuchin implied in February that the previous administration's methods would be used again, and Trump himself admitted last week that China was no longer a currency manipulator. Yet, while the conclusions are similar, this year's report takes a markedly different tone than last year's. The two 2016 reports were more functional in tone, while this first 2017 report dwelled on extraneous information such as China's history of manipulation.
Though the Trump administration may have pulled back from some of the positions it took during the election, this report still represents a more aggressive document than previous ones. In addition, with the United States currently conducting a 90-day review of its trade policies, the relatively measured first report on currency policies does not preclude more assertive trade actions being taken in the months ahead. In the future, the new focus on monitoring countries with a large proportion of the U.S. trade deficit could lead to investigations into other countries that do not necessarily meet any of the three criteria for being labeled a currency manipulator but are manipulating their currencies in other ways.