US: China, Germany must do more to reduce trade surpluses


China and Germany are not manipulating the value of their currencies to gain an unfair trade advantage, but both should do more to reduce their large trade surpluses with the United States, the Treasury Department said Friday.

The decision was expected after President Donald Trump this week reversed himself and said China was not a currency manipulator.

The administration's first report to Congress on foreign exchange policies of US trading partners continues the stance of the Obama administration, putting those and four other countries on a watch list, though using a much tougher tone.

Unlike the previous administration, which issued its final report in October, the latest semi-annual report urges specific policy actions the countries should pursue that would lead to a lower trade surplus.

Trump repeatedly pledged in his election campaign to name China as a currency manipulator on his first day in office, but did not do so. He has retreated from that position after meeting with Chinese President Xi Jinping in Florida last weekend.

China met only one of the three criteria required to be labeled a currency manipulator -- a large trade surplus with the United States -- while Germany also met a second: a current account surplus amounting to more than three percent of the nation's economic output.

Beijing has not intervened in markets to weaken the value of its currency -- the third criteria -- and in fact has tried to keep the renminbi from falling further amid the country's relatively sluggish growth rate.

And Germany, as part of the eurozone, cannot act unilaterally to change the value of the euro.

A weaker currency makes exports cheaper compared with those of competitors.

Japan, South Korea, Taiwan (Taiwan OTC: 6549.TWO - news) and Switzerland also were again included on the monitoring list.

Even (Taiwan OTC: 6436.TWO - news) though China has not moved to keep its currency weak in recent years, the country "has a long track record of engaging in persistent, large-scale, one-way foreign exchange intervention, doing so for roughly a decade," the report said.

That "distortion in the global trading system... imposed significant and long-lasting hardship on American workers and companies."

With (Other OTC: WWTH - news) a trade surplus in goods with the United States of $347 billion last year, and continued policies that restrict free trade, "Treasury will be scrutinizing China's trade and currency practices very closely."

The department said Germany should take steps, notably spending policies, "to encourage stronger domestic demand growth, which would place upward pressure on the euro's nominal and real effective exchange rates and help reduce its large external imbalances."

Treasury Secretary Steven Mnuchin said ensuring a level playing field for US businesses is an "essential component of this administration's strategy."

"Expanding trade in a way that is freer and fairer for all Americans requires that other economies avoid unfair currency practices, and we will continue to monitor this carefully," he said in statement.