U.S. Treasury Report to Congress on Trade Partners' Currency Practices Will Once Again Fall Short of Its Mandate

The Trump administration will release its latest report on trade partners' currency practices imminently. Like its prior three iterations of this semi-annual report mandated by Congress to identify countries whose distortion of currency values to gain trade advantages must be addressed, it is unlikely any country will be listed. A new analysis (PDF) by Public Citizen shows how the Trump Treasury Department's decision to rely on reporting criteria created by the previous administration has ensured no action on the issue, despite then-candidate Donald Trump pledging to crack down on countries that gain trade advantages by distorting currency values.

"One of Trump's most emphatic campaign promises was to declare China a currency manipulator on Day One and crack down on any country misaligning its currency to cheat on trade, but Trump's Treasury secretary has chosen to rely on criteria created by the previous administration that ensure no action is taken," said Lori Wallach, director of Public Citizen's Global Trade Watch.

Public Citizen's analysis shows that the Treasury Department is not taking full advantage of the tools available to put countries on notice for damaging currency practices. The latest "Report to Congress on the Foreign Exchange Policies of Major Trading Partners of the United States" is expected today.
Large U.S. structural trade deficits consistent with misaligned currencies have grown in recent years. Data released on October 18 by the U.S. Census Bureau show that the U.S. merchandise trade deficit with the world over the first eight months of 2018 is the highest in the decade since before the 2008-09 financial crisis.

After rising over the Trump administration's first two years, the U.S. merchandise trade deficit with NAFTA partners in 2018 is now also on pace to be the highest in a decade. The U.S. goods trade deficit with China over the first eight months of 2018 is the highest ever recorded.

Drawing in part from analysis by economists at the Peterson Institute for International Economics and the Council on Foreign Relations, Public Citizen recommends several changes to Treasury's reporting regime to better align the review methodology with statutory obligations. This includes broadening the number of countries analyzed by eliminating self-imposed, arbitrary cutoffs on which countries are investigated, reviewing countries' overall policy stances rather than immediate practices and reporting on countries' efforts to improve transparency on foreign exchange interventions.

"While the NAFTA 2.0 deal sets an important precedent by being the first to include a currency provision in its main text, it provides no mechanism for actually disciplining countries that manage their currency values in a way that affects trade. The Treasury reporting process, on the other hand, is tied to a set of remedial actions and covers many more countries. The Trump administration must take full advantage of the authority Congress has provided to influence the foreign exchange practices of trading partners through the semi-annual reporting process," Wallach said.

The full Public Citizen analysis is available here (PDF).