US stops short of labelling Taiwan a currency manipulator

The US Treasury has stopped short of formally designating Taiwan as a currency manipulator, but said it would begin engaging with the country to address the issue.

The Biden administration also removed currency manipulation designations for Vietnam and Switzerland, which were added last December by the Trump administration. The previous administration had last year accused the two countries of pushing their currencies lower to prevent “effective balance of payments adjustments” and in the case of Vietnam “for gaining unfair competitive advantage in international trade”

In its semi-annual report on Friday, the US said the three countries met all three criteria under a 2015 US law used by the Treasury department to evaluate whether a country is debasing its currency. However, citing a separate US law, it concluded there was “insufficient evidence” to find that any of the three was manipulating its currency to gain trade advantages.

“The Covid impacts for the year 2020 make it more challenging to understand what appropriate policies that should have been,” a Treasury official said.

The official added that volatile capital flows from early 2020 “led many of our major trading partners, including us, to undertake significant macroeconomic policy adjustments to counteract the impacts of Covid”.

“We need to better understand the policy choices that were available to our major trading partners so that we can make more informed judgment,” the official said.

In a statement released alongside its report, the Treasury said its engagement with Vietnam, Switzerland and Taiwan would include “urging the development of a plan with specific actions to address the underlying causes of currency undervaluation and external imbalances”.

The warning to Taiwan comes as President Joe Biden has sought to bolster ties after recent incursions by China’s military into Taipei’s air defence identification zone. A global shortage of semiconductor chips has also increased US industry’s reliance on technology groups such as Taiwan Semiconductor Manufacturing Company.

The Treasury also urged China to improve transparency regarding its foreign exchange intervention activities. China, Japan, South Korea, Germany, Italy, India, Malaysia, Singapore and Thailand remain on its watchlist, and Mexico and Ireland have also been added.