Germany and China must do more to cut trade surpluses: US

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 on Friday.

Germany and China must do more to cut trade surpluses: US
US Treasury Secretary Steven Mnuchin at the G20 Finance Ministers meeting in Germany in March. Photo: Thomas Kienzle/AFP

The decision was expected after President Donald Trump this week reversed himself and said China was not a currency manipulator.

And although the administration's first report to Congress on the foreign exchange policies of US trading partners continues the stance of the Obama administration, putting six countries with troublesome policies on a watch list, it takes a much tougher tone.

Unlike the previous administration, which issued its final report in October, the latest semi-annual report urges specific policy actions the countries should pursue that would lead to a lower trade surplus.

Trump repeatedly pledged in his election campaign to name China as a currency manipulator on his first day in office — prompting fears of a trade war – but did not do so. He publicly retreated from that position after meeting with Chinese President Xi Jinping in Florida last weekend.

China met only one of the three criteria required to be labeled a currency manipulator – a large trade surplus with the United States – while Germany also met a second: a current account surplus amounting to more than three percent of the nation's economic output.

Beijing has not intervened recently in markets to weaken the value of its currency – the third criteria – and in fact has tried to keep the renminbi from falling further amid the country's relatively sluggish growth rate.

Germany, as part of the eurozone, cannot act unilaterally to change the value of the euro.

A weaker currency makes exports cheaper compared with those of competitors. Declaring a country a manipulator would set off a process including negotiations that could culminate in punitive trade sanctions on the offender.

Treasury Secretary Steven Mnuchin said ensuring a level playing field for US businesses is an “essential component of this administration's strategy.”

“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,” he said in statement.
   Japan, South Korea, Taiwan and Switzerland also were again included on Treasury's monitoring list.

China must open economy

Even though China has not moved to keep its currency weak in the past three years, the country “has a long track record of engaging in persistent, large-scale, one-way foreign exchange intervention, doing so for roughly a decade,” the Treasury Department said.

That “distortion in the global trading system… imposed significant and long-lasting hardship on American workers and companies.”

With a trade surplus in goods with the United States of $347 billion last year, and continued policies that restrict free trade and foreign investment, “Treasury will be scrutinizing China's trade and currency practices very closely.”

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.”

Beijing also will need to prove that the recent stance of not trying to weaken the currency is “a durable policy shift,” even if the renminbi begins to appreciate again.

Germany should spend more

The Treasury Department said Germany should take steps, notably spending policies, “to encourage stronger domestic demand growth,” something the country's trading partners and the International Monetary Fund have been urging for some time.

Increased demand “would place upward pressure on the euro… and help reduce its large external imbalances,” increasing domestic consumption, including of imported goods.

Those imbalances include its $65 billion goods trade surplus with the United States last year, and what the department calls “the world's largest current account surplus at close to $300 billion.”

The report also called on Japan to do more “to revive domestic demand and combat low inflation while avoiding a return to export-led growth.”

This would include more “flexible” government spending policies, and continued reforms to boost the labor market and increase productivity of the Japanese economy.


Germany welcomes US troop withdrawal freeze under Biden

The German government on Friday welcomed a decision by President Joe Biden to put on hold plans to reduce US troops in Germany, saying their presence was in the countries' mutual interest.

Germany welcomes US troop withdrawal freeze under Biden
An American soldier stationed in Germany, in front of Dresden's Military History Museum in 2016. Photo: DPA

“We have always been convinced that American troops being stationed here in Germany serves European and transatlantic security and hence is in our mutual interest,” German government spokesman Steffen Seibert told reporters.

As part of a major foreign and security policy overhaul presented Thursday, Biden announced a freeze on plans set in motion by his predecessor Donald Trump to reduce the US troop presence in Germany, a cornerstone of NATO security since the start of the Cold War.

READ ALSO: What could Joe Biden as US president mean for Germany?

Trump's decision was seen as linked to his tense relationship with German Chancellor Angela Merkel and his frequent complaints that Europe's top economy spent too little on defence.

The United States has had US troops stationed in Germany since World War II but their numbers have declined since the fall of the Berlin Wall from some 200,000 soldiers in 1990 to 34,500 today.

Although the prospect had been looming for years, Trump's decision in July to redeploy 12,000 soldiers from Germany still came as a shock, particularly to towns that have built strong economic and cultural ties to the US military.

READ ALSO: Trump to withdraw 'thousands of US soldiers from Germany' under Biden

“We strongly value the close, decades-long cooperation with the American troops stationed in Germany,” Seibert said.

He said the communities hosting GIs appreciated their presence, calling the bases “part of the lived transatlantic friendship”.  

Seibert said German officials were in “consultations” with the US administration about “further planning” but that the decision how to shape the future American military footprint in Europe was a “US domestic issue”.