This has become one of the key questions lately as the US Treasury Secretary is set to release the semi-annual report on the FX policies of trade partners next week. However, although President Trump repeatedly states that China is a currency manipulator, the current law does not justify such a label.
As the US law stands right now, China lives up to only one of the three criteria needed to designate the country a currency manipulator. The Treasury has established thresholds for these criteria that is specified in the Trade Facilitation and Trade Enforcement Act of 2015. The criteria and thresholds are
1. A significant bilateral trade surplus with the US of at least USD20bn.
2. A material current account surplus of at least 3% of GDP.
3. Persistent, one-sided intervention, which occurs when net purchases of foreign currency are conducted repeatedly and total at least 2% of an economy's GDP over a 12-month period. The FX reserve has thus been declining in recent months.
China only lives up to the first of these criteria as the current account surplus has narrowed considerably and is actually close to zero. China is also not intervening to weaken the CNY. On the contrary, it is currently intervening to slow the depreciation.
We therefore still doubt that the Treasury would be able to label China a currency manipulator officially. However, the US will probably send a clear warning to China not to start using the currency as a tool in the trade war and highlight that it is watching things closely. China has repeatedly stated that it would not use the CNY as a tool.
To read the entire report Please click on the pdf File Below: