Through Republican and Democrat Administrations, no US president has found that a foreign country’s activities have risen to the level that can be considered manipulation for nearly a quarter of a century. Initially, the law required a judgment of intent. Intervention by itself, or even a pegged currency regime, was not proof of manipulation. Unsatisfied with the process, Congress provided some quantitative metrics, like a large bilateral surplus with the US, large external surplus overall, and significant intervention on one side of the market.
The Treasury issues its evaluation twice a year as Congress mandate. The latest report was released on April 13. Rhetoric and criticism of others by the administration aside, the Trump Administration found no country meets the three-fold criteria. There was little new in the report, except that India was added to the watchlist, and the Administration suggests that it may increase the number of countries that are included going forward.
On the very next business day, President Trump tweeted that China and Russia were playing a “currency devaluation game,” and that this was “not acceptable.” This is incongruous with the Treasury’s report and seemed to weigh on the dollar in the North American session.
It is confounding. The yuan has appreciated by around 10% over the past 12 months. As recently as last week, the new central bank governor announced that China would not weaponize the foreign exchange market. Contrary to the war camp, China indicated it will not devalue the yuan in the trade dispute with the US.
The ruble is a different story. It has tumbled around 9%, not so much because of Russia’s policies, but due to the increasing US sanctions against Russian companies and oligarchs, and the suggestion of more to come. US officials have increased the penalties for being on the wrong side of this one.
What is the US President signaling? The US Treasury report used a specific quantitative definition. Could Trump be saying that other metrics show China and Russia are purposely devaluing their currencies to secure trade advantage? He did not provide any evidence, and when reports pressed the Treasury Department, they were advised to contact the White House. Later Secretary Mnuchin suggested the tweet was a warning.