An exchange rate manipulator refers to a country that artificially manipulates the exchange rate to make it appear relatively low, making its export prices seem cheap, or causing its import trading partners to criticize it as a currency manipulator. Because the products are cheaper, people like its products and reduce the purchase of local products. This will lead to the loss of employment in the importing country. The manipulating country sacrifices the interests of other countries to create more jobs for the country and enjoy a higher GDP.
The exchange rate adjustment is a country’s sovereignty, but the manipulation of the exchange rate is expressly prohibited by the IMF and WTO. Some Western countries, led by the United States, have repeatedly accused China of “manipulating the exchange rate” and believe that countervailing measures should be taken against China. Among them, some members of the US Congress proposed a series of bills against China, such as the Exchange Rate Retaliation Act, the Chinese Currency Act, and the US Trade Rights Exercise Act. Here we analyze what happened between China and the United States about whether China is manipulating the exchange rate and constitutes an anti-subsidy element, in order to face it. Therefore, the definition of exchange rate manipulation, on the one hand, because the exchange rate system is related to a country’s sovereignty, on the other hand, because the exchange rate issue is also a financial issue, not a trade issue, so it should be under the jurisdiction of the International Monetary Fund.
The currency manipulator is mainly the rhetoric of the United States, specifically identified by the U.S. Treasury Department. Its legal basis is the “Exchange Rate and International Economic Policy Coordination Act of 1988” (Exchange Rate and International Economic Policy Coordination Act of 1988)
The U.S. Treasury Department submits a foreign exchange report (Report on International Economics and Foreign Exchange Policy) to Congress every six months, and then publishes it through Congress. Once a country is identified as a “exchange rate manipulator”, Congress will pass a resolution to impose punitive measures against the country, such as “punitive tariffs.” The legal basis is Article 310 of the U.S. Commercial Law of 1974 (i.e., Omnibus Foreign Trade and Competitiveness Act, 1302(a)).
How to determine this “exchange rate manipulator” is determined by the US Treasury Department.
The United States defines “unjustified exchange rate manipulation” as:
- The trade surplus with the US exceeds US$20 billion a year
- Current account surplus accounts for 3% of GDP
- Foreign exchange purchased through exchange rate intervention exceeds 2% of GDP
Meeting these three conditions is recognized as a “currency manipulator”
First recognized as a “exchange rate manipulator”, it must have the following characteristics
U.S. trading powers used improper intervention in their own exchange rates, resulting in the interest rate of the domestic currency against the U.S. dollar exchange rate being beneficial to domestic trade, while gaining illegitimate benefits from trade with the United States.
The three key words in the above sentence are the limits of exchange rate manipulation. Exchange rate manipulators must meet these three conditions before they can be monitored or recognized by the United States.
- The volume of trade with the United States is huge (excess export)
- Improper intervention in the domestic exchange rate
- Obtaining improper benefits from trade with the United States
In addition, this law is not intended to target China. South Korea, Taiwan, and China have all been identified as currency manipulators.
List of countries and regions that have been recognized as exchange rate manipulators:
In 1988, South Korea once
In 1988 and 1992, Taiwan twice
From 1992 to 1994, five times in Mainland China
After the establishment of the WTO in 1994, the U.S. government stopped its identification of “exchange rate manipulators.” The reason is that the identification of other countries as exchange rate manipulators makes the United States have protectionist tendencies, which is contrary to the purpose of the WTO, that is, the above-mentioned 310 is contrary to the WTO.
In addition, in the April 2016 report, the United States proposed for the first time the “list of surveillance countries and regions,” that is, countries and regions that may manipulate foreign exchange. The legal basis is the Trade Promotion Authority, or TPA, which is the law of the TPP. One of the terms of the agreement.
Including the following 5 countries,
China, meets condition 1 condition 2
Germany, condition 1 condition 2
Japan, meets condition 1 condition 2
South Korea, condition 1 condition 2
Taiwan, meet condition 3
Both Romney and Trump have claimed that China will be recognized as a currency manipulator after taking office. It’s just a campaign slogan, because the definition of “exchange rate manipulator” is clear (the above three conditions), and the US government has been implementing this policy. If China meets the three conditions, it has long been recognized as an exchange rate manipulator. Trump comes.