The Treasury Department backs down on some of its criticism of China's currency policies

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October 18, 2017 3:51 PM

The Treasury Department moderated its criticism of China's FX policies, but pointed to its goods trade deficit with the US.

The US Treasury Department moderated its criticism of China's foreign exchange policies, but highlighted its large bilateral trade deficit with the US.
China does not actually match the Treasury's three criteria for being labeled a currency manipulator.
It's likely Trump pulled back from criticizing China's FX policies due to the situation in North Korea, which he himself implied in an interview earlier this year.

The department did, however, keep China on the "Monitoring List," and pointed to its large bilateral trade surplus with the US.

"China’s recent intervention in foreign exchange markets, tightened capital controls, and increased discretion over setting the daily fixing rate of the RMB have likely prevented a disorderly currency depreciation that would have had negative consequences for the United States, China, and the global economy," the department said in the report.

The Treasury said it remains "concerned by the lack of progress made in reducing the bilateral trade surplus with the United States." And it added that China continues to "pursue a wide array of policies that limit market access for imported goods and services, and maintains restrictive investment regime that adversely affects foreign investors."

In February, US President Donald Trump called China the "grand champions" of currency manipulation. And during his campaign, he pledged to label the country a currency manipulator on his first day in office — although he did not.

It's likely that the president pulled back on calling China a currency manipulator given the delicate situation with North Korea. He implied as much in an interview with The Economist published in May 2017:

There are three criteria that must be met for a country to be labeled a currency manipulator by the Treasury Department:

Major trading partners that match two out of the three criteria are added to a "Monitoring List," and remain there for at least two consecutive reports. China, which remained on the list, actually only matches one of the criteria.

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