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The U.S. government has stayed its hand and not branded China a currency manipulator. That forbearance irritates advocates of an all-out assault on Chinese economic practices — U.S. President Donald Trump among them — but it reflects the reality of Beijing’s policy, as well as that of other countries of concern, Japan among them. This respite may prove temporary, however: In six months, the United States will again assess its trade partners’ currency policies and practices, and Washington’s frustration at stubbornly high trade deficits may overcome economic logic.

The U.S. Treasury is required by law to provide reports to Congress every six months on international economic policies, including the exchange rate policies of its major trading partners. If a country meets three conditions — a significant (greater than $20 billion) persistent trade surplus; a persistent current account surplus that is greater than 3 percent of GDP; and persistent, repeated one-sided intervention in currency markets that exceeds 2 percent of GDP over a one-year period — then it can be labeled a currency manipulator. That allows the U.S. to commence trade negotiations to lower the trade deficit. Failure to reach agreement permits Washington to impose tariffs, subject to World Trade Organization approval. The U.S. last charged a country a currency manipulator in 1994: China was the offender.

Trump pledged on day one of his administration that he would declare China a currency manipulator. That would allow him to impose sanctions and end a practice that he claimed afforded Chinese companies an unfair advantage in business competition, costing Americans jobs and profits. After four successive Treasury reports, however, China has escaped the label.

The report released Thursday conceded that no country has met the three criteria that justify sanctions but it identified six countries that “merit close attention to their currency practices and macroeconomic policies.” Those six are: China, Japan, South Korea, India, Germany, and Switzerland. Make no mistake, however: China is the focus of U.S. concern. The report began with a discussion of Chinese transgressions and devoted the bulk of its attention to China’s behavior. Treasury Secretary Steven Mnuchin said a lack of transparency and the recent weakness of China’s currency, the renminbi (RMB), “pose major challenges to achieving fairer and more balanced trade and we will continue to monitor and review China’s currency practices.”

That review will complement billions of dollars of tariffs that the U.S. has already imposed on Chinese goods, a move that sparked retaliation from Beijing. Washington has sanctioned about $250 billion worth of Chinese goods, while Beijing has hit $110 billion in U.S. products.

At first glance, Trump may have a case. The U.S. had a $375.9 billion deficit in trade in goods with China last year, a little less than half the entire U.S. global goods trade deficit and the largest imbalance with any nation. Japan has the third-largest bilateral goods trade surplus with the U.S., which reached $70 billion through June.

But those numbers do not tell the entire story. First, the Treasury report notes that Japan has not intervened in foreign exchange markets since 2011 and concedes that intervention by the People’s Bank of China this year had been “limited.” The head of the PBOC pledged last week at meetings of international economic officials that China would not manipulate its currency to help deal with trade frictions.

Second, a deficit in goods trade does not tell the entire story. It excludes trade in services, a sector in which the U.S. invariably has a large surplus. The Treasury report acknowledged in a footnote that it enjoys a services trade surplus with China, Japan, South Korea and Switzerland, which reduces imbalances.

Currency values for countries like the U.S., China and Japan are hard to manipulate — their economies are so large that any attempt to move rates is likely to be temporary. Moreover, to the degree that China has intervened in currency markets, it has been to avoid excessive depreciation. Beijing does not want the RMB to fall too far too fast, not only because it would trigger a reaction by the U.S., but because it would raise broader questions about the stability of the Chinese economy.

A more compelling explanation for a weaker RMB (or a weaker yen) is the strength of the U.S. economy. The U.S. is experiencing robust growth of 3.2 percent, courtesy of generous tax cuts and a booming stock market at a time when the Chinese economy is slowing. The U.S. dollar is rising as U.S. interest rates increase and investors worry about emerging market risk along with damage that can and will be done to China by the Trump tariffs.

That logic will have little impact on the president, however. He likes measures that he can impose to create an image of action and strength. He has a 1980s perspective on the economy that has little relation to the way it currently works. Japan and other U.S. trade partners must prepare for the misguided policies that result.

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