WASHINGTON (Bloomberg) – US Treasury Secretary Janet Yellen will reject reference to China as a currency manipulator in her first semi-annual foreign exchange report, according to people familiar with the matter. This enables the United States to avoid another clash with Beijing.
The report, which has yet to be finalized, is due to be released on Thursday (15 April), although it is unclear when the ministry will publish it. During the Trump era, the Treasury Department was accused of politicizing the report after it suddenly branded China a manipulator outside its usual release schedule in mid-2019 to upgrade its rating five months later to win concessions in a trade deal.
A spokeswoman for the Finance Ministry declined to comment. The external yuan slightly extended its gains during the day after the news, rising 0.2 percent to hit a new daily high of about 6.5462 against the US dollar.
Yellen’s team also discussed the possibility of reversing the Trump administration’s move to lower thresholds in 2019 to see if the economy is forging its currency for a competitive advantage, said people who requested anonymity because the conversations are private. They said the withdrawal could lead to the agency nearly halving the number of countries it audits.
The Biden administration is keen to hold China accountable for unfair trade practices and other issues such as human rights violations, while it considers how former President Donald Trump should deal with tariffs on Chinese goods amounting to billions.
Classification as a currency manipulator does not result in any immediate penalties, but it can upset financial markets. The law requires the administration to work with states to resolve perceived exchange rate imbalances. Sanctions, including the disqualification of US government contracts, can be imposed after one year unless the publisher is removed.
As China prepares to evade the tampering signal in the upcoming report, tax officials are concerned that the nation is masking currency turmoil through the activities of state-owned banks, according to people familiar with the matter.
During her confirmation hearing in January, Yellen told lawmakers that the United States should “oppose” other countries’ attempts to manipulate her currencies.
She also suggested changing the currency reporting standards, saying that the bilateral trade deficit should not be seen as a “blanket measure”.
In the most recent report during the Trump administration, then Treasury Secretary Stephen Mnuchin described Switzerland as a currency manipulator and put India on his watch list for further scrutiny. Since then, officials in these countries have largely ignored the United States and continued the aggressive moves, indicating that the report was no longer as effective as before.
There was a “special” explanation for the criteria for manipulation under the Trump administration, according to Eswar Prasad, a Cornell University economist who previously worked in the China division of the International Monetary Fund.
In 2017, Mnuchin placed China on an alleged watchlist of countries that were screened for issuing one of the three standards instead of the two set forth in the report.
Prasad said the Finance Ministry now needed to “restore the report’s credibility, using more rational criteria and consistently applying it across countries rather than changing the process to specifically target one country.”
The Treasury’s currency report had a particular resonance in Asia, where eight of the 10 members on December’s watchlist and the Vietnam Maneuver sign were at home. Tensions between the United States and China affected regional governments during the trade war that began under the Trump administration, and the relationship between a major security and investment partner and its largest economic partner.
You are now preparing for the possibility that the White House, led by President Joe Biden, will continue to pressure not only China but some of its traditional allies or friends in the region, including through domestic monetary policy assessments.