China Is Not A Currency Manipulator, Yet

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Despite huge amounts of data to the contrary and the opinions of a large number of economists, The Treasury Department said China is not a currency manipulator. Treasury sends a report on trade to Congress twice a year. The Department has decided to avoid the China issue for many years, probably because it would cause a trade war. The trade sanctions for nations which are labeled manipulators are severe. Better, the Treasury Department believes to negotiation than to chose and economic nuclear options.

China was not alone. No nation was labeled a currency manipulator in the report:

The Omnibus Trade and Competitiveness Act of 1988 (the “Act”) requires the Secretary of the Treasury to provide semiannual reports on the international economic and exchange rate policies of the major trading partners of the United States. Under Section 3004 of the Act, the Report must consider “whether countries manipulate the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustment or gaining unfair competitive advantage in international trade.” This Report covers developments in the second half of 2010, and data as available through the first four months of 2011. Treasury has concluded that no major trading partner of the United States met the standards identified in Section 3004 of the Act during the period covered in this Report.

In its document, called the Report to Congress on International Economic and Exchange Rate Policies the Treasury remarked:

Based on the ongoing appreciation of the renminbi against the dollar since June 2010, China’s public statements asserting that it will continue to promote RMB exchange rate flexibility, and China’s recent policy commitments through the G-20 and the S&ED to address external imbalances, Treasury has concluded that the standards identified in Section 3004 of the Act during the period covered in this Report have not been met with respect to China. Treasury’s view, however, is that progress thus far is insufficient and that more rapid progress is needed. Treasury will continue to closely monitor the pace of appreciation of the renminbi by China. We will continue to encourage China to open markets and to pursue policies that level the playing field and support a shift to domestic-demand led growth.

By almost any real world standards, the statement is not true. The amount of agitation about China’s currency stretches from South America to Europe. China’s policies on the yuan have been a blunt object to make the finished goods of the People’s Republic more attractive as imports.

There is always next time–six months from now. The outcome won’t change then.

Douglas A. McIntyre

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