Nations with surpluses on watchlist

Washington, April 30

The United States on Friday flagged concerns over economic policies in China, Japan, Korea, Taiwan and Germany and put them on a new monitoring list, mostly due to their large surpluses. It is the first time the US Treasury has implemented provisions passed in Congress this year as part of a trade bill that provided it with new ways to address possible unfair currency practices.

None of the five countries satisfied the criteria for enhanced scrutiny, which is triggered when a country has a significant bilateral trade surplus with the United States, a material current account surplus and engages in persistent one-sided intervention in the currency market.

Still, Treasury said it would closely monitor the five countries’ economic trends and foreign exchange policies.

In its semi-annual report to Congress on the economic and currency policies of a dozen major trade partners, the Treasury did not label any major trade partner a currency manipulator, a custom it has kept for the past 22 years.

US has for years called for countries with current account surpluses to do more to boost lacklustre domestic demand.

Trade has emerged as a flashpoint in US presidential campaign, where some leading contenders have blasted trade pacts as having cost American jobs and railed against nations they say have weakened their currencies to boost exports.

In its report, Treasury said that China, Japan, Korea and Germany all had a significant bilateral trade surplus with the United States and a material current account surplus.

A significant trade surplus with the United States is defined by Treasury as a country with a bilateral trade surplus of more than $20 billion.

Treasury determines a country has a material current account surplus when its surplus is larger than three per cent of that economy’s GDP.

Low oil prices had swelled the coffers of oil importing countries, including China, Germany, Taiwan and Korea.

In particular, Treasury noted Germany had the second-largest current account surplus in the world, part of which could ‘be used to support German domestic demand’.

Taiwan was found to have both a material current account surplus and have made ‘persistent’ net foreign currency purchases last year, prompting the US to call on it to limit foreign exchange interventions to exceptional circumstances and increase transparency. It issued a similar call on Korea to limit currency intervention.

China intervened heavily in foreign exchange markets in recent months and ‘more clarity over exchange rate goals would help to stabilise market’, Treasury said, adding it expected the renminbi to continue to experience real appreciation over the medium term.