This step by Treasury was required by the Trade Enforcement and Trade Facilitation Act (the “customs bill”), which became law in February 2016, state Bergsten and Gagnon.
The customs bill mandates that Treasury “shall commence enhanced bilateral engagement” with each major trading partner of the United States that meets three objective criteria The criteria, which are the focus of Treasury’s new report, would indict a country that meets three of the below four.:
- has $55 billion or more of annual trade with the United States (to count as a “major trading partner”);
- runs a significant bilateral trade surplus with the United States, which Treasury defines as exceeding $20 billion over the past 12 months;
- runs a material (global) current account surplus, which Treasury defines as exceeding 3 percent of the country’s GDP over the past 12 months; and
- engages in persistent one-sided intervention in the currency market, which Treasury defines as repeated net foreign exchange purchases exceeding 2 percent of the country’s GDP over the past 12 months.
Treasury found that no country calls for “enhanced engagement” at this time (although the criteria would have caught China in most of the past 15 years and other countries, including Korea and Malaysia, in several, notes Bergsten-Gagnon). However, it finds that five countries meet two of the criteria and are thus to be placed on a new “monitoring list."
This entire trade battle and currency manipulation concerns, of course, are old discredited mercantilist concerns.
A sound economist on learning a foreign country was trying to manipulate its currency lower would simply reply, "Great, our citizens will be able to buy foreign goods cheaper!"