Asian economies escape 'manipulator' tag, but expect more pressure on trade

Troy Powers
April 19, 2017

The Trump administration declined Friday to label China a currency manipulator despite President Donald Trump's insistent pledge during the election campaign that he would do so as soon as he took office.

In addition to Taiwan, the U.S. Treasury has also placed China, Japan, South Korea, Germany and Switzerland on the list.

Upon announcing his candidacy in 2015, Trump said that China's currency practices were making it impossible for American companies to compete and declared, "They're killing us".

The country's Deputy Prime Minister of economics and Finance Minister Yoo Il-ho called his USA counterpart Steven Mnuchin on Thursday, the day before the report was released, to convince him that Korea is doing its best to reduce what the new Trump administration sees as a trade imbalance.

The Treasury report recognized what many analysts have said over the past year, namely that China has recently intervened in foreign exchange markets to prop up the value of its yuan currency, not push it lower to make Chinese exports cheaper. This occurred in 1994 under then president Bill Clinton. "Unfortunately the president's failure to name China a currency manipulator is symptomatic of a lack of real, tough action on trade against China". The designation means there will be intense talks between the U.S. and the labeled country and can lead to tariffs imposed by the US.

He said progress on trade was needed to narrow the deficit between the two countries but that should be achieved through increasing United States exports to China, not cutting USA imports of Chinese goods. Its surplus with the United States totaled $65 billion past year.

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But in an interview with the Wall Street Journal on Wednesday, Mr. Trump said China had not been "currency manipulators" for some time and had been trying to prevent further weakening.

Trump said he was working with the Chinese president to confront North Korea's attempts to develop a missile capable of reaching the U.S. mainland, saying Xi "understands it's a big problem".

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 USA goods and services and a shift away from exports to more domestic consumption. He also said: "I think our dollar is getting too strong, and partially that's my fault because people have confidence in me".

The report said the Korean government needs to enhance the flexibility of the exchange rate and the USA will continue to monitor the government's intervention.

Trump repeated his criticism of critics who pointed out that he changed his position on China, saying his policies toward the country were successful and resulted in persuading China to take a harder line on North Korea.