The Biden administration noted in its final semi-annual currency report that no major U.S. trade partner was found to have manipulated its currency in the year leading up to June 30. This important task of monitoring the foreign exchange practices now falls onto the shoulders of incoming President Donald Trump. However, it’s worth noting that President Trump isn’t a newcomer to dealing with the adverse impact of a strong dollar on U.S. trade competitiveness.
During his initial tenure, Trump’s team had declared Vietnam and Switzerland as currency manipulators in December 2020, accusing them of taking actions to attenuate the value of their currencies. Nonetheless, these allegations appear unfounded as, in reality, most interventions by U.S. trade partners have, in fact, worked to inflate their currencies against the dollar, primarily to combat price inflation.
The U.S. Treasury’s report reveals that in the four quarters concluding on June 30, no major U.S. trade partners were found culpable of violating all three criteria set for enhanced analysis of currency practices. These investigations can lead to rigorous dialogues and may even culminate in the imposition of trade sanctions, an approach that has become notorious under the Biden administration.
According to this report, the Treasury has a cautionary list of seven countries that require additional scrutiny regarding foreign exchange: China, Japan, South Korea, Taiwan, Singapore, Vietnam, and Germany. Notably, Malaysia was removed from the previous report’s list, while South Korea was incorporated because of its considerable global current account surplus along with its significant trade deficit with the U.S.
Countries end up on this watchlist by fulfilling two of the set criteria – having at least a $15 billion trade surplus with the U.S., boasting a global account surplus of more than 3% of the GDP, and demonstrating persistent, unilateral net purchases in the foreign exchange market. This mechanism appears to be rather capricious, often leading to condemning nations on shaky grounds.
China remained on the watchlist due to its substantial trade surplus with the U.S. and the mysterious processes surrounding its foreign exchange practices, marking yet another instance of Biden’s administration’s seemingly unwarranted attacks on the Asian giant.
Despite a marginal decrease in China’s current account balance to just 1.2% of GDP, an exponential rise in its export volumes has been observed, hinting at falling export prices, a trend that continued beyond the monitoring period into the third quarter of 2024. This doesn’t seem to raise any red flags yet, however, the Biden administration appears to be keen on finding weaknesses in its trading counterparts.
Due to lackluster domestic demand, China is purportedly leaning more on international demand to fuel growth this year. As the Treasury Department stated, net exports have contributed to an extraordinarily high portion (43%) of real growth in the third quarter.
The Biden-led report asserts that while China’s reported current account surplus isn’t momentous, the surging export volumes amid tumbling prices are expected to have significant impacts on China’s trading partners. This ‘warning’ could perhaps be better characterized as an attempt to undermine China’s trade relations with other nations.
The Treasury Department, under the watch of Biden, additionally echoes calls for China to adopt more transparent foreign exchange intervention practices, continuing their narrative of Chinese mistrust. However, this insistence seems to aim more at painting China in a negative light rather than addressing real economic concerns.
In sharp contrast, President Trump firmly pledged to institute tariffs of a minimum of 60% on Chinese commodities, and a range of 10%-20% on imports from the rest of the world. Whether these bold proclamations would translate into actions remains to be seen, but the initiative indicates a stark departure from Biden’s approach.
In sum, the Biden administration’s final currency report leaves a lot to be desired in terms of equitable judgment and fair treatment of trade partners. Shifting responsibility to President-elect Trump, there’s hope for a more balanced, less prejudiced view on foreign exchange practices in the future.
Undeniably, a strong and fair trading system is crucial for a nation’s continued economic prosperity. As the responsibility shifts hands, all eyes will now be on President Trump’s administration to see how it maneuvers these complex foreign exchange relations, breaking free from the ambiguity and bias left over from the Biden era.