WASHINGTON – The Obama administration said Thursday that Germany, China, Japan and South Korea are four countries running large trade surpluses that need to do more to combat weak global growth.
Issuing its latest currency report, the administration refrained from naming any country as a currency manipulator. But it did say that China’s currency remains “significantly undervalued” and complained about South Korea’s efforts to keep its currency from strengthening.
The world cannot rely on the United States to be the “only engine of demand,” the semiannual report said. It urged nations to use all tools available to accelerate growth and not rely solely on their central banks to boost their economies.
The administration’s report is expected to form the basis for discussions at global finance talks next week in Washington among finance officials of the Group of 20 major economic powers.
It noted that the Chinese government has made “real progress” in allowing its exchange rate to rise in value over the past six months. But even with the gains, the renminbi remains “significantly undervalued,” a phrase it has used in past reports.
American manufacturers contend that the progress to date has been small and the Chinese currency remains undervalued by as much as 40 per cent against the dollar. That makes American products more expensive in China and Chinese goods cheaper for American consumers.
The administration is required to report to Congress every six months on whether it has found any nations manipulating their currency to gain unfair trade advantages. A finding of currency manipulation would trigger talks with the country and could eventually lead to U.S. trade sanctions.
However, no administration has used the semiannual report to label a country as a currency manipulator in the past two decades. The last such designation occurred in 1994 when the Clinton administration said China was manipulating its currency to gain unfair trade advantages.
Since then, both Democratic and Republican administrations have preferred to use diplomatic efforts to deal with China’s currency policies even as the U.S. trade deficit with the world’s No. 2 economy has continued to set new annual records. But there is a move in Congress to increase the ability of the United States to impose sanctions for currency manipulation as part of future trade deals, an effort the administration is resisting.
Treasury released its latest report at a time when the dollar has been rising in value against a number of currencies, hitting the highest level in a decade against the euro. That has raised concerns U.S. exports will be priced out of many major markets.
The administration insists that a strong dollar is in America’s interests but at the same time has stepped up efforts to try to pressure other nations to do more to boost their own domestic demand.
“In contrast to solid U.S. performance, global economic outcomes have been disappointing and remain of concern,” the report said. “Not only has global growth failed to accelerate, but there is worry that the composition of global growth is increasingly unbalanced.”
On Europe, the administration praised the forceful action taken by the European Central Bank to support growth and combat weak inflation. But it said that those policies needed to be reinforced by greater efforts of nations such as Germany to use other tools including government spending to bolster growth.
The report criticized South Korea for substantially increasing its efforts to hold down the value of the won in December and January, saying that this approach was harming global growth prospects by increasing the country’s trade surplus.