The semi-annual currency report was released by the U.S. Department of Treasury last week. The report, published under the Trump administration refrained from naming any of the trading partners as currency manipulators but maintained pressure on China.
The report criticized China for its “non-market direction” and warned of the global risks. “The increasingly non-market direction of China’s economic development poses growing risks to its major trading partners and the long-term global growth outlook,” the Treasury said.
Currencies in the U.S. Treasury Report’s Watch list (Source: CNBC.com)
The Treasury Department’s report comes at a time when the Trump administration has been actively pursuing tariffs against China and renegotiating the various trade agreements that include the North American Free Trade Agreement (NAFTA) and the Trans Pacific Partnership (TPP).
The report added India to the “monitoring list” which includes other countries such as China, Japan, Germany, South Korea and Switzerland which was initially added under the Obama administration in 2016.
Taiwan, which was part of the monitoring list was removed from the watch list in October last year. Meanwhile, the U.S. administration is in talks with its South Korean counterparts to hammer out a currency agreement deal to prohibit competitive devaluation and exchange rate manipulation.
Malaysia and Thailand were also speculated to have been considered for being added to the watch list but the two nations were not added in the latest Treasury report.
As the US Treasury Report adds India to watch list, the report detailed how the country’s foreign exchange purchases in the first three quarters of 2017 reached a record $56 billion or about 2.2% of India’s GDP.
The report said that further accumulation of reserves by India was not necessary given that the nation maintains control on both inbound and outbound flows of private capital.
India is estimated to have a trade surplus of $23 billion in 2017, which was small compared to China’s trade surplus of $375 billion.
On Japan, the report said that the economy ran a heavy trade surplus with the United States. “Treasury remains concerned by the persistence of this large bilateral trade imbalance between the United States and Japan,” the report said.
It is likely that President Trump would urge his counterpart to reduce the trade surplus. Japan’s Prime Minister, Abe is expected to meet with Trump this week where trade talks and the state of the TPP are likely to come up.
The report said that the improving economy in Japan and inflation helped push the yen to strengthen 3.6% against the U.S. dollar in 2017.
“Japanese officials have publicly voiced concern over the appreciation of the yen this year, but Japan has not intervened in the foreign exchange market in over six years,” the report said.
BoJ officials and various other public figures were vocal in citing their concerns when the Japanese yen was strengthening last year. It is understood that the threshold of 105 yen sparks verbal intervention as seen in previous occasions.
There were no references to the recent threats made by President Trump on imposing billions of dollars worth of tariffs on Chinese goods. The report was somewhat balanced as it said that the yuan, on a trade weighted basis was broadly unchanged against the U.S. dollar.
The Treasury’s report also called for China to open its economy to the U.S. goods and services. It comes at a time when last week, China’s Premier Xi, in a speech announced plans for opening China’s markets to the world. Among the proposed measures, Xi promised majority stake from foreign investors in sectors such as automobile and insurance which were until now heavily regulated and and banned foreign investors from owning a majority stake.