INSUBCONTINENT EXCLUSIVE:
When is a currency manipulator not a currency manipulator When it's your friend.That's the best conclusion to draw from the U.S
Treasury Department's latest report on the macroeconomic and foreign-exchange policies of major trading partners, handed up to Congress
Trump @realDonaldTrump Russia and China are playing the Currency Devaluation game as the U.S
keeps raising interest rates
Still, the facts don't lie: Though the Treasury said it was "deeply concerned" by the country's trade surplus, activities of the People's
Bank in the foreign-exchange market were declared to be "effectively neutral."What's more notable is what wasn't said in the report, which
tends to reflect how geopolitical considerations end up trumping raw economics
The best picture of this comes when you re-run the numbers yourself, to adjust for the way the Treasury puts its thumb on the scales.First,
let's look at the countries with which the U.S
has the biggest deficits in goods trade, the first of the criteria now used to label manipulators
Any country that has a surplus of more than $20 billion with the U.S
on this measure is under suspicion
Here's the list:Then we can look at the countries with substantial current-account surpluses
In this criterion, any surplus greater than 3 percent of gross domestic product raises concern
Here's that breakdown:The last measure marks down any country whose purchases of foreign currency equate to more than 2 percent of GDP in a
This is a bit harder to calculate so we've limited the data to countries on the watch list from the previous two criteria:Put that all
together and you get the following chart, which suggests that only one country - Thailand - meets all three criteria for manipulation
China is way down the list, on about the same level as Mexico, India and Israel:The most striking thing about this analysis isn't so much
China's low position, but the high position of other Asian countries including Vietnam, Malaysia, South Korea, Japan and Taiwan.If you think
of this report as purely an economic document, it's strange that this group of countries gets off the hook
As Council on Foreign Relations fellow Brad Setser has pointed out, Vietnam and Thailand (and Malaysia, for that matter) aren't even
mentioned in the report.That one-sidedness makes a lot more sense if you consider the study not as a piece of financial analysis, but as a
tool of economic diplomacy
Thailand, Malaysia, Vietnam, South Korea, Japan and Taiwan are all U.S
allies in Asia that Washington hopes will act as bulwarks against Beijing's rising global might
Criticizing their exchange-rate policies would risk antagonizing them, and send them spinning back into China's orbit
Given the long-term stakes, being too fastidious about how they manage their currencies doesn't make much sense.Of course, the governments
in question know this, and adjust their exchange-rate policies accordingly
This allows Washington's allies to take advantage of its forbearance and keep their currencies weak, thus boosting their exports to the U.S
But it's probably not quite right to say this is the main driver of what's going on.After all, take another look at the players on our
Germany, Ireland, Italy, France and Switzerland are far more concerned with their trading and current-account relationships with respect to
They still come up because the criteria assume that the world revolves around the U.S
alone.That's the way to think about the Asian economies on the target list
If their currencies end up weaker against the greenback than they should be, that's really a second-order effect of the thing these
countries care about: keeping their exchange rates and export industries competitive in relation to China, by far the more important trading
partner.Getting named in the report doesn't do much more than allow the U.S
to engage in the same sorts of bilateral talks it's haltingly pursuing now, but the political pressure for China to be singled out in the
next edition, due six months from now, is ramping up
As long as it uses empirical analysis, though, the Treasury will keep coming up against the fact that if anything China has been supporting,
rather than depreciating, its currency.Perhaps a different set of criteria than the ones Washington has been using would produce a result
more acceptable to the White House
Still, if you're going after manipulation, cooking up a new methodology to get the result you want seems a bit on the nose.Disclaimer: The
opinions expressed within this article are the personal opinions of the author
The facts and opinions appearing in the article do not reflect the views of TheIndianSubcontinent and TheIndianSubcontinent does not assume
any responsibility or liability for the same.
