The Treasury Department has placed five countries – China, Japan, Germany, South Korea and Taiwan – on a new monitoring list designed to pressure foreign governments to tackle large trade imbalances with the United States.
The action was disclosed in a report the administration sent to Congress on Friday. The report, which by law Treasury must submit to Congress every six months, does not designate any nation as a currency manipulator. But Treasury did say it is employing new tools to more closely monitor actions of countries with which the United States is running large deficits.
Under criteria Congress established earlier this year, Treasury put the countries on a monitoring list that will trigger talks but no economic penalties. However, if the discussions fail, the countries could face a greater threat of sanctions in the future.
The legislation was part of an effort to toughen a 1988 law that requires Treasury to assess whether any U.S. trading partner is manipulating its currency to gain unfair trade advantages. The designation enables the United States to try to negotiate with the offending nation to reform its practices.
If those talks fail, the United States can seek to impose trade sanctions such as penalty tariffs, though those sanctions must win approval of the World Trade Organization.
The last country designated a currency manipulator under the 1988 law was China in 1994 during the Clinton administration.
Unhappy with a dearth of designations over the past two decades, Congress amended the law in legislation that cleared the Senate in February to set up specific criteria that the administration could use short of deeming a country a currency manipulator.
The three criteria selected were the size of America’s trade deficit with the nation, the size of the nation’s current account trade surplus with all nations, and the frequency with which the nation intervened in currency markets. If a country met all three criteria, the law requires the administration to engage in ”enhanced analysis” of the country’s practices.
Treasury said that none of the five nations had met all three criteria. But all five meet two of the three criteria, which is why they have been placed on a ”monitoring list.”
That will mean Treasury Secretary Jacob Lew and other administration officials will raise U.S. trade concerns as part of regular discussions that take place during gatherings such as finance meetings of the Group of 20 major economies.
The new surveillance process is being put in place at a time when America’s large trade imbalances with countries such as China, Japan and Mexico have become an issue in the presidential campaign.
Republican front-runner Donald Trump contends that the Obama administration and previous administrations have failed to enforce U.S. trade laws. He has said those failures have allowed foreign countries to run huge trade surpluses with the United States, costing millions of American jobs.
In his economic plan, Trump has promised to immediately declare China a currency manipulator as a way to bring the country to the bargaining table to change trade practices U.S. critics contend are hurting American workers and companies.