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Trump pulls his punches on China and Germany

17 April 2017

The Trump administration didn't label any country, including China, a currency manipulator in its Friday report on exchange rates sent to Congress. Treasury finds that six major trading partners warrant being placed on the Monitoring List for special attention: "China, Germany, Japan, Korea, Switzerland and Taiwan", it said.

The Treasury also warned that it will scrutinize China's trade and currency practices very closely and called for faster opening of China's economy to United States goods and services and a shift away from exports to more domestic consumption.

Earlier this week, U.S. President Donald Trump reversed course on a promise that he had made both on the campaign trail and from the White House: that he would designate China as violating worldwide exchange-rate rules, pushing down the yuan to gain a competitive advantage.

"China has clearly embarked on market-oriented exchange rate reform, with the yuan's daily trading band already expanded to 3 per cent from 0.3 per cent", Zhou said.

But the reversal could also mean that Trump and Chinese President Xi Jinping may have figured a way to fix the trade imbalance and the tension in the Korean peninsula during their meeting earlier this month in Florida.

Zhou Shijian, a senior fellow at Tsinghua University's Institute of International Relations, said the Treasury made a "right and realistic decision" not to label China as a currency manipulator, something China had not been branded since 1992.

"Fixing trade imbalances will be an issue for the United States in its dialogues with China and Japan, while the manipulator threat has been put on the backburner", a Japanese government official told Reuters.

Trump, in a Wall Street Journal interview, said China had not manipulated the yuan for months, while accusing nations that he didn't identify of devaluing their currencies and saying the USA dollar is getting too strong.

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"China now has an extremely large and persistent bilateral trade surplus with the United States, which underscores the need for further opening of the Chinese economy to American goods and services", as well as quicker reforms to boost household consumption, according to the Treasury report.

The promise of restoring American jobs by cutting off what it considers unfair trading practices has been a signature promise of the Trump administration.

This was the Trump administration's first release of the twice-yearly report, which evaluates the foreign exchange policies of major US trading partners.

The Treasury report was being awaited with great interest until Wednesday, when Trump offered a preview in an interview with The Wall Street Journal.

"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.

"The United States can not and will not bear the burden of an global trading system that unfairly disadvantages our exports and unfairly advantages the exports of our trading partners through artificially distorted exchange rates", it said.

The report also called on Japan to do more "to revive domestic demand and combat low inflation while avoiding a return to export-led growth".