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Trump v. Treasury

Trump v. Treasury

Mr. Trump tweeted today:

U.S. Treasury reported on Friday:

Pursuant to the 2015 Act, Treasury finds that no major trading partner of the United States met all three criteria in the current reporting period. Five major trading partners of the United States, however, met two of the three criteria for enhanced analysis in this Report. Additionally, one major trading partner, China, constitutes a disproportionate share of the overall U.S. trade deficit. These six economies – China, Japan, Korea, India, Germany, and Switzerland – constitute Treasury’s Monitoring List. Japan, Germany, and Korea have met two of the three criteria in every Report since the April 2016 Report (the initial Report based on the 2015 Act), having material current account surpluses combined with significant bilateral trade surpluses with the United States. Switzerland has met two of the three criteria in every Report since the October 2016 Report, having a material current account surplus and having engaged in persistent, one-sided intervention in foreign exchange markets. China has met one of the three criteria in every Report since the October 2016 Report, having a significant bilateral trade surplus with the United States, with this surplus accounting for a disproportionate share of the overall U.S. trade deficit. India met two of the three criteria for the first time in this Report, having a significant bilateral surplus with the United States and having engaged in persistent, one-sided intervention in foreign exchange markets. Treasury will closely monitor and assess the economic trends and foreign exchange policies of each of these economies.

Regarding the 2015 Act, while no economy met all three of the criteria for the current reporting period, Treasury remains deeply concerned by the significant and persistent trade imbalances in the global economy. The global adjustment process has not worked effectively to promote a symmetric adjustment toward smaller imbalances in a manner that sustains – rather than inhibits – global growth.

A times series on Chinese FX intervention is displayed below, demonstrating why currency manipulation is hard to identify by the simplest criterion.


Source: US Treasury, Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States, April 2018.

The table below summarizes how countries stack up along the three criteria used by Treasury.


Source: US Treasury, Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States, April 2018.

For an assessment using the Penn effect as well as a macroeconomic balance approach from a year ago, see this post.

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