China and Germany are not manipulating the value of their currencies to gain an unfair trade advantage, but both should do more to reduce their large trade surpluses with the United States, the Treasury Department said Friday.
"China has a long track record of engaging in persistent, large-scale, one-way foreign exchange intervention", the Treasury Department said in its semiannual report on the foreign-exchange policies of major USA trade partners.
That "distortion in the global trading system. imposed significant and long-lasting hardship on American workers and companies".
The Trump administration has chosen not to brand China a currency manipulator in an official report, reversing one of the president's most prominent campaign promises on trade.
Economists and business leaders had said that China wasn't manipulating its currency.
The last report released in October found that six countries - China, Japan, Korea, Germany, Taiwan and Switzerland - met two of the three criteria.
Also, Seoul's financial authorities intervened on the foreign exchange market throughout 2016 in order to ease a sharp depreciation of the local currency, selling $6.6 billion over the on-year period. He promised to label the country a currency manipulator on day one of his presidency.
The large goods surplus "underscores the need for further opening of the Chinese economy to American goods and services, as well as faster reform to rebalance the Chinese economy toward greater household consumption".
"Expanding trade in a way that is freer and fairer for all Americans requires that other economies avoid unfair currency practices, and we will continue to monitor this carefully", Mnuchin added.
The U.S. report said Asia's fourth-largest economy posted US$28 billion in goods surplus with the U.S. last year, with its current account surplus accounting for 7 percent of the country's gross domestic product.
Presidents have often used these semiannual reports as a diplomatic tool while engaging with countries that are seen as having exchange rate policies that harm U.S.jobs and economic growth.
Now, China needs to show that its lack of intervention in the currency markets "to resist appreciation" over the past three years is a "durable" policy by allowing the yuan to strengthen "once appreciation pressures resume", the Treasury said. In a recent interview after meeting China's President Xi Jinping, he said he no longer planned to go ahead with the move.
The central bank yesterday said that the listing was expected, so it is unlikely that it will adversely affect the foreign-exchange market.
The Treasury left the criteria for manipulation unchanged at having a trade surplus with the USA above $20 billion; having a current-account surplus amounting to more than 3 percent of gross domestic product; repeated currency depreciating by buying foreign assets equivalent to 2 percent of output over the year.
The report said that China remained on the list because of its "disproportionate share of the overall USA trade deficit", despite that China's current account surplus was only 1.8 percent of GDP in 2016, sharply down from 2.8 percent of GDP in 2015.