Trump’s ability to officially punish China, Japan, and Korea for alleged currency manipulation is limited.
U. S. President Donald Trump has not yet officially labeled China a currency manipulator, despite promising to do so on his first day in office. This is not due to a change of heart, as evidenced by his recent referral to China as the “ grand champions ” of currency manipulation. So why hasn’t he acted on the manipulation charges he levied against China during the campaign, as well as those against Korea and Japan?
Most of Trump’s international economic advisers and cabinet picks share his views on currency manipulation, particularly Wilbur Ross at the Department of Commerce and Peter Navarro, head of the new National Trade Council. The notable exception is Treasury Secretary Steven Mnuchin. At every possible opportunity Mnuchin has distanced himself from the president’s rhetoric by supporting the established review procedures to determine if China manipulates its currency, insinuating a commitment to the same fundamental economic principles that have led many to counter Trump’s arguments on this issue. While Trump’s sentiments are drowning out those of his treasury secretary — look no further than recent Japanese and Korean consternation over potentially receiving the unwanted label — Mnuchin’s outlook and the legal process for naming a manipulator are key to understanding why the president has not translated rhetoric into action.
Under the Trade Facilitation and Trade Enforcement Act of 2015 , it is the responsibility of the U. S. Treasury Department — not the president himself — to gauge if a trading partner is manipulating its currency. With respect to individual partners, the law sets out criteria for Treasury to track: “(1) a significant bilateral trade surplus with the United States, (2) a material current account surplus, and (3) engaged in persistent one-sided intervention in the foreign exchange market.” If a country meets all three criteria, Treasury is required to declare it a currency manipulator in its biannual reports to Congress in April or October, though it has flexibility in how these criteria are interpreted.
During the Obama administration, Treasury defined the three corresponding criteria as: (1) a bilateral trade surplus of $20 billion, (2) a current account surplus larger than 3 percent of GDP, and (3) repeated net purchases of foreign currency more than 2 percent of GDP over the previous 12 months.
