On April 29, the U.S. Department of the Treasury (Treasury) Office of International Affairs issued a report to Congress entitled “Foreign Exchange Policies of Major Trading Partners of the United States.” The semiannual report, required under the Omnibus Trade and Competitiveness Act of 1988 and the Trade Facilitation and Trade Enforcement Act of 2015, reviews the currency practices of America’s major trading partners.

Significantly, in its report, Treasury has created a new “monitoring list” that includes the economies of China, Japan, Korea, Taiwan, and Germany. These countries have been found to meet two of three factors requiring enhanced analysis.

Treasury has determined the thresholds for these criteria as follows:

• A significant bilateral trade surplus: An economy has a significant trade surplus with the United States if its bilateral trade surplus is larger than $20 billion (roughly 0.1 percent of U.S. GDP), which captures around 80 percent of the value of all trade surpluses with the United States last year.
• A material current account surplus: An economy has a material current account surplus if its surplus is larger than 3 percent of that economy’s GDP.
• Persistent one-sided intervention in the foreign exchange market: An economy has engaged in persistent one-sided intervention in the foreign exchange market if it has conducted repeated net purchases of foreign currency that amount to more than 2 percent of its GDP over the year.

China, Japan, Germany, and Korea are included on the monitoring list as a result of a material current account surplus combined with a significant bilateral trade surplus, and Taiwan is included as a result of its material current account surplus and its persistent, one-sided intervention in foreign exchange markets, according to the report.

Section 701 of the Trade Facilitation and Trade Enforcement Act of 2015 mandates that the President report to Congress on whether other countries are meeting this stringent three-part test in their currency policy and requires the President, for the first time, to hold other countries accountable for their currency manipulation practices.

Reacting to the report, Senate Finance Committee Chairman Orrin Hatch (R-UT) said the new requirements “provided the Treasury Department with the tools that it needed to produce a more effective analysis and a higher-quality report.” House Ways and Means Committee Chairman Kevin Brady (R-TX) said that the Committee will “continue to watch this process closely to ensure that the President squarely addresses currency manipulation and stands up for the American people.”

Lauren M. Donoghue