The Treasury Department on Tuesday stopped short of declaring China a currency manipulator but raised concern anew about the need for the Asian powerhouse to let markets play a greater role in determining the value of its currency.
In its Semi-Annual Report to Congress on International Economic and Exchange Rate Policies, Treasury officials also raised concerns about Japan’s economic and financial policies and whether they do enough to boost domestic demand for goods and services.
Asia’s strong exports to the United States and weak domestic demand are a constant rub point on trade policy, but the twice-a-year report focuses most on China.
Policymakers in China have widened the band in which their currency, the yuan, can rise or fall against the U.S. dollar, the report noted.
However, after allowing the yuan to appreciate by about 2.9 percent against the dollar in 2013, making U.S. products more price competitive in China, that welcome news appears at risk of being undone.
“During 2014, however, the exchange rate has reversed direction, depreciating by a marked 2.68 percent year to date,” the report released Tuesday said. “There are a number of continuing signs that the exchange rate adjustment process remains incomplete and the currency has further to appreciate before reaching its equilibrium value (against the dollar).”
Treasury officials urged Japan and Korea to rely less on exports to the United States and foster greater domestic demand for products made at home. One way to do that is to let these currencies appreciate against the dollar, the report said.
Despite the frictions, however, the Treasury Department stopped short of accusing any of the Asian partners of manipulating their currencies for home-field advantage.
“Based on the analysis in this report, Treasury has concluded that no major trading partner of the United States met the standard of manipulating the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade,” the report concluded.
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