The Trump administration labeled Switzerland and Vietnam currency manipulators on Wednesday, in another parting shot at trading partners that would complicate matters for U.S. President-elect Joe Biden’s incoming team.In a long-overdue report, the U.S. Treasury also added India, Thailand and Taiwan to an inventory of trading partners it says could also be deliberately devaluing their currencies against the dollar.
The COVID-19 pandemic has skewed trade flows and widened U.S. deficits with trading partners, an irritant to outgoing President Donald Trump, who won office four years ago partly on a promise to shut the U.S. trade gap.
The Swiss commercial bank said it doesn't manipulate its currency and “remains willing to intervene more strongly within the exchange market”.Vietnam’s financial institution said it might work with U.S. authorities to make sure a “harmonious and fair” trade relationship.
“Vietnam’s exchange rate policy has for years been managed during a thanks to contain inflation, ensure macro stability and to not create unfair trade advantage,” the depository financial institution of Vietnam said during a statement.
The manipulator labels will build up pressure on Biden before he takes over, Per Hammered, chief emerging markets strategist at SEB in Stockholm, said.
“You set the agenda and force him (Biden) into positions that he will need to get out of somehow,” Hammered said.A US Treasury official said Biden’s transition team had not been briefed, adding: “They aren't implicated during this .”
Treasury Secretary nominee Janet Yellen could alter the findings in her first currency report, which is due in April.The President-elect’s team has been critical of other moves by Treasury Secretary Steven Mnuchin, including ending some Federal Reserve System pandemic lending programmes.
Mnuchin said during a statement that the Treasury “has taken a robust step today to safeguard economic process and opportunity for American workers and businesses.”
China, labeled by Mnuchin as a currency manipulator in August 2019 at the peak of trade tensions, was kept on the Treasury’s monitoring list thanks to its high trade surplus with the US.Mnuchin lifted the designation in January, two days before the world’s two largest economies signed a “Phase 1” trade deal.
Countries must a minimum of have a $20 billion-plus bilateral trade surplus with the US, foreign currency intervention also as a worldwide accounting surplus exceeding 2 per cent of GDP to be labeled a manipulator.
Vietnam and Switzerland far exceeded these criteria, with exchange interventions of 5 per cent and 14 per cent of GDP respectively.
The report said that a minimum of a part of Vietnam’s intervention was aimed toward pushing down the dong for a trade advantage, while a minimum of a part of Switzerland’s action was aimed toward pushing down Swiss franc to stop effective balance of payments adjustments.
Mark Sobel, a former Treasury and International fund (IMF) official, said the manipulator designations were “mechanistic” interpretations of the thresholds that ignored subtleties and extenuating circumstances.
These include safe-haven inflows into Switzerland’s currency thanks to the pandemic and a rush of foreign investment into Vietnam in 2019, fueled by US tariffs on Chinese goods.
“They’re missing some more obvious cases of harmful currency practices,” said Sobel, adding that Taiwan and Thailand, which narrowly missed the intervention thresholds, “have been intervening heavily for years.”
The Treasury official said the US will seek negotiations with Switzerland and Vietnam to bring them back below the manipulation thresholds and declined to take a position on whether the method could lead on to US tariffs on their goods.
Among remedies laid out in US laws governing the currency report are limiting offending countries’ access to government procurement contracts and to development finance.
Vietnam might be hit with tariffs under a separate probe by the US Trade Representative’s office into the causes of an undervalued dong that would be influenced by the Treasury report. Some business leaders fear Trump could act before a late December hearing on the difficulty , but a source conversant in the matter said that appeared unlikely.
Taiwan will maintain stability in its exchange rate, a financial institution official told Reuters after the island was placed on the on US Treasury’s currency monitoring list.
The label briefly lifted the worth of Swiss franc against the dollar. Forex strategists said the move may make it slightly harder for the SNB to intervene, but the easing of the coronavirus pandemic would scale back upward pressure on the franc.
The Treasury also said its “monitoring list” of nations that meet a number of the standards has hit 10, with the additions of Taiwan, Thailand and India. Others remaining on the list are China, Japan, Korea, Germany, Italy, Singapore and Malaysia.
The report said that India and Singapore had intervened within the exchange market in an “asymmetric manner” but didn't meet other requirements to warrant a manipulator label.