The Trump administration on Wednesday branded Switzerland and Vietnam as currency manipulators, in another split attempt against trading partners that could complicate matters for the incoming team of US President-elect Joe Biden.
In a long overdue report, the US Treasury also added India, Thailand and Taiwan to a list of countries it said would deliberately devalue their currencies against the dollar.
The Covid-19 pandemic has skewed trade flows and widened US deficits with trading partners, an irritant for outgoing President Donald Trump, who became president four years ago partly on a promise to close the trade gap American.
The Swiss National Bank said it did not manipulate its currency and “remained ready to intervene more strongly in the foreign exchange market”.
Vietnam’s central bank has said it will work with US authorities to ensure a “smooth and fair” trade relationship.
“Vietnam’s exchange rate policy has been managed for years to contain inflation, ensure macroeconomic stability, and not create unfair trade advantages,” the State Bank of Vietnam said in a statement.
The manipulative labels will increase the pressure on Biden before he takes over, said Per Hammered, chief emerging markets strategist at SEB in Stockholm.
“You set the agenda and force him (Biden) to take positions that he will have to get out of somehow,” Hammered said.
A US Treasury official said Biden’s transition team had not been notified, adding: “They are not involved in this.”
Janet Yellen, candidate for the US Treasury secretary, could change the findings of her first currency report, due in April.
A spokesperson for Biden’s team did not respond to a request for comment.
The president-elect’s team criticized other actions taken by US Treasury Secretary Steven Mnuchin, including ending some Federal Reserve pandemic loan programs.
Mnuchin said in a statement that the Treasury “has taken strong action today to safeguard economic growth and opportunities for American workers and businesses.”
China, described by Mnuchin as a currency manipulator in August 2019 at the height of trade tensions, has been kept on the Treasury’s watch list due to its large trade surplus with the United States.
Mnuchin lifted the designation in January, two days before the world’s two largest economies signed a “phase 1” trade deal.
Business advantage
Countries must have at least a bilateral trade surplus of at least $ 20 billion with the United States, foreign exchange intervention exceeding 2% of gross domestic product, and a global current account surplus greater than 2% of GDP to be qualified as manipulator.
Vietnam and Switzerland largely exceeded these criteria, with foreign exchange interventions of 5% and 14% of GDP respectively.
The report says that at least part of Vietnam’s intervention was aimed at lowering the dong for a trade advantage, while at least part of Switzerland’s action was aimed at lowering the Swiss franc to prevent effective balance of payments adjustments.
The Treasury said Switzerland’s foreign exchange intervention amounted to 14% of GDP.
Vietnam, which has seen foreign investment from companies seeking to avoid US tariffs on Chinese goods, has seen an intervention of more than 5% of its GDP, he added.
Mark Sobel, a former Treasury and International Monetary Fund (IMF) official, said the manipulator designations were “mechanistic” interpretations of the thresholds that ignored the intricacies and extenuating circumstances.
These include safe-haven inflows in Swiss currency due to the pandemic and a wave of foreign investment in Vietnam in 2019, fueled by US tariffs on Chinese products.
The IMF has forecast that Vietnam’s current account surplus will fall below the 2% of GDP threshold for 2020.
“They lack more obvious cases of harmful exchange practices,” Sobel said, adding that Taiwan and Thailand, which narrowly missed the intervention thresholds, “have been intervening heavily for years.”
The Treasury official said the United States would seek to negotiate with Switzerland and Vietnam to bring them below manipulation thresholds and declined to speculate that the process could lead to U.S. tariffs on their goods. products.
Among the remedies specified in US currency reporting laws is limiting the access of offending countries to government procurement and development finance.
Vietnam could face tariffs as part of a separate investigation by the office of the U.S. trade representative into the causes of an undervalued dong that could be swayed by the Treasury report. Some business leaders fear Trump may act before a late-December hearing on the matter, but a source familiar with the matter said it seemed unlikely.
Taiwan will keep its exchange rate stable, a central bank official told Reuters after the island was placed on the US Treasury’s currency watch list.
The label briefly raised the value of the Swiss franc against the dollar. Forex strategists said the move could make the SNB’s intervention slightly more difficult, but that the mitigation of the coronavirus pandemic would ease upward pressure on the franc.
The Treasury also said its “watch list” of countries that meet some of the criteria reached 10, with the additions of Taiwan, Thailand and India. Still others on the list are China, Japan, Korea, Germany, Italy, Singapore, and Malaysia.
The report said India and Singapore had intervened in the foreign exchange market “asymmetrically” but did not meet the other requirements to justify a manipulative label.
