The US Treasury Department issued the first version of its periodic currency manipulation report under 2015 trade enforcement legislation overriding the 30 year-old Omnibus Competitiveness Act, which details specific criteria and remedial action triggers in response to the long China debate and congressional consideration of binding guidelines in the proposed Trans-Pacific Partnership. Five countries were named to the “monitoring list,” including Germany outside Asia in view if its second highest global 8 percent of GDP current account surplus, 5 percent above the qualifying threshold under the process. The other two perquisites are a minimum $20 billion bilateral trade surplus and annual net reserve buying of more than 2 percent of GDP. Analysis then turns to potential undervaluation and investment limits, and if they exist the Treasury Secretary must first engage in consultations and after a year take measures that could include federal government contracting suspension, increased IMF surveillance, or trade pact retaliation. These responses are not automatic and can be waived on cost or national security grounds. The monitored countries are not yet at this stage and other emerging economies including Brazil, Mexico and India are regularly under review. China is a perennial feature with a $350 billion 3 percent of GDP current account surplus last year, the first one at that level since 2010. It sold foreign exchange reserves to miss that criterion and the currency was “more market-determined” in contrast to previous declarations of aggressive devaluation. Japan made the surplus cut but has not intervened for four years, although the Treasury warned that even with recent wide swings the dollar yen market was “orderly” and thus should be left alone under current G-20 commitments. Korea was admonished for several years of anti-appreciation operations beyond allowable “disorderly conditions” and put on notice that it among the group could soon enter the next anti-manipulation phase.
Taiwan had the largest surplus at almost 15 percent of GDP and accumulated more than 2 percent in reserves but the bilateral imbalance fell short of $20 billion. Germany had not before been a currency policy target and its Eurozone surplus too was 3 percent, which was labeled “excess saving that could support domestic demand and global rebalancing.” The IMF separately was at odds with German officials over Greece’s fiscal retrenchment needed to stay in the single currency and unlock the delayed portion of last year’s EUR 85 billion package. It also reiterated the concept of debt relief as the burden hovers at 200 percent of GDP five years after consecutive EU rescues and private bond restructurings. The main state banks must be recapitalized once again as deposit leakage continues, and Prime Minister’s threatened resort to another public referendum on actions came up empty. The new exchange rate enforcement provisions got 75 percent bipartisan backing before the presidential election campaign went into full swing with the issue particularly in play from respective Democratic and Republican contenders Sanders and Trump. Both oppose Pacific free trade and have been harsh on Chinese currency practice despite the latest findings, with Beijing again memorialized as a master manipulator.