‘Not political’ currency report

Mnuchin would not discuss the findings of the currency report and declined comment on media reports that treasury staff had recommended that China not be labelled a currency manipulator. But Mnuchin emphasised that the report was based on rigorous research and data, and that the treasury’s career staff and leadership were fully aligned on currency issues.

“The currency report is something we report to Congress. It is done pursuant to two separate pieces of legislation. This is not a political document,” he said.

IMF Managing Director Christine Lagarde warned on Thursday against adding currency wars to the trade conflict, saying this would hurt global growth and “innocent bystander” countries.

Despite U.S. President Donald Trump’s pledge to declare China a currency manipulator on “day one” of his administration, the Treasury has stuck to its three-part test for evidence of currency manipulation — and China has failed to qualify for such a designation.

These include a high bilateral trade surplus with the US, a global current account surplus above 3% of GDP and “persistent” one-way currency market intervention to weaken or prevent a rise in a country’s currency. In the past two years, China has failed on only one criteria, its high trade surplus with the United States.

US laws mandating the report require the Treasury to enter special negotiations with an offending country to correct their practices, a process that could eventually lead to trade sanctions. But the Trump administration has already hit China with tariffs on $250bn worth of Chinese goods imports, and has threatened duties on the remaining $267bn.

Mnuchin declined to confirm a Wall Street Journal report that the White House had decided to proceed with a meeting in November between U.S. President Donald Trump and President Xi Jinping at the Group of 20 (G20) leaders summit in Buenos Aires.

But he said re-launching trade talks would require China to commit to taking action on structural reforms to its economy.

“It’s got to be more than a signal” from China, Mnuchin said. “It has to be that we can reach an agreement on action items that can rebalance the relationship. We’ve made it clear that if they have real action items that they want to discuss that we will listen.”

If the relationship could be rebalanced, he said the U.S.-China total annual trade relationship could grow to $1-trillion from $650bn currently, with $500bn of exports from each country. That would approach the $1.2-trillion US-Canada-Mexico trade under the North American Free Trade Agreement.

Pakistan debt transparency

As the IMF launches talks with Pakistan over a bailout package, Mnuchin said transparency was needed for Pakistan’s debts to China and other creditors.

“I think it’s pretty clear that if there is an IMF programme, that we’d need to make sure those funds are used for appropriate purposes and they’re not being used to repay China or other creditors. I would expect China to understand that.”

Regarding steep US stock market declines over the past two days, Mnuchin said these were “normal market corrections”.

“I don’t believe markets are efficient,” he said. “So I think that when people invest in the markets, they need to be prepared that there will be times when markets go too far in both directions.”

Reuters

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