Trump's reversals come after crash course on the issues

Posted April 26, 2017

And although the administration's first report to Congress on the foreign exchange policies of USA trading partners continues the stance of the Obama administration, putting six countries with troublesome policies on a watch list, it takes a much tougher tone.

A US Treasury spokesman confirmed that the Treasury Department's semi-annual report on currency practices of major trading partners, due out later this week, will not name China a currency manipulator.

While the report stops short of labeling the country a currency manipulator, the Treasury Department report criticizes China for past currency manipulation and warns that the United States "will be scrutinizing China's trade and currency practices very closely".

According to the central bank, Taiwan only met one of the three criteria in the latest report as Taipei still enjoyed a large current account surplus, but did not meet the criterion which accused a trading partner of persistent one-sided currency intervention.

"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.

The U.S. report was the first since Donald Trump was sworn in as president last January, and drew attention because of his predictions during the election campaign that he would label China as a currency manipulator.

In an interview with The Wall Street Journal on Wednesday, Trump said "they (the Chinese) are not currency manipulators".

The report contains an implicit threat that unless China gives USA exporters greater market access and further rebalances the economy, the USA could act to rectify the trade imbalance, according to Eswar Prasad, former head of the International Monetary Funds China division.

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In fact, the president's trade stance on China has taken an even softer tone since he met last week with President Xi Jinping.

Trump's Treasury Department used the same standards for determining currency manipulation as those of the previous administration under President Barack Obama.

The U.S. hasn't branded any country a manipulator since 1994.

Only when Taiwan meets just one of the three criteria for two USA currency reports in a row, it will be removed from the monitoring list, the central bank said.

During the campaign, Trump had repeatedly called China a manipulator, saying, "They're killing us" by devaluing their currency to make it harder for American companies to compete against Chinese products. Economists say the USA currency could rise further as the Federal Reserve raises interest rates.

"China will need to demonstrate that its lack of intervention to resist appreciation over the last three years represents a durable policy shift by letting the RMB rise with market forces once appreciation pressures resume", the report says.

This would include more "flexible" government spending policies, and continued reforms to boost the labor market and increase productivity of the Japanese economy.