China will not be formally labelled a currency manipulator by the US Treasury Department in their upcoming foreign exchange report, Bloomberg revealed Tuesday, citing people familiar with the matter.
Officials at the department have thus far declined to elaborate on the decision, which is due for release by Thursday at the latest and which will be the first issued by Treasury Secretary Janet Yellen under the new Biden administration.
The move allows leaders to avoid adding yet another scuffle to the rocky economic relationship between the two countries as President Joe Biden’s team attempts to set a new tone following the conclusion of former President Trump’s term in office.
While the US Treasury’s semi-annual report aims to hold countries accountable for perceived unfair propping up of their currencies in the global trading system, it has also been implemented as leverage in bilateral negotiations between Washington and Beijing over recent years.
During the Trump administration, Treasury officials led by former Secretary Steve Mnuchin declared in an August 2019 report that China had officially met the necessary criteria to qualify as a currency manipulator. While the allegation did not necessitate hard legal or policy changes, it served as a highly symbolic and provocative statement of animosity on behalf of US trade officials.
In January 2020, the Treasury agreed to lift the classification as a key concession during trade deal negotiations. At the time, Secretary Mnuchin justified the reversal, declaring that “China has made enforceable commitments to refrain from competitive devaluation, while promoting transparency and accountability.”
Although the Biden administration’s approach to its trade relationship with China remains to be fully developed, Secretary Yellen at her January confirmation hearing stressed the importance of preventing manipulative practices by foreign governments.
However, Yellen has also emphasized the need to restore legitimacy to the Treasury Department’s foreign exchange report, in response to growing perceptions that its currency manipulation criteria had been applied in an inconsistent and politically motivated fashion under the Trump administration. To counter this trend, officials are reportedly considering narrowing the conditions for a country to be considered a currency manipulator, reversing a previous change under Secretary Mnuchin’s leadership.
The Treasury’s latest foreign exchange report comes as China’s imports and exports undergo a solid recovery from economic damage induced by the pandemic.
According to calculations by Reuters, the value of the country’s export market surged by 30.6% in March year-on-year, while its imports grew by 38.1% over the same period. Reuters also calculated that China’s trade surplus with the US for the month of March amounted to $21.37 billion, down slightly from the previous month but still representing a substantial margin.
Amidst a rebounding global economy and accelerating vaccination campaigns in a range of major companies, the Chinese economy appears to well-positioned to continue making significant gains in months ahead.