Is Korea a currency manipulator?
Trump set to combat currency devaluation to boost economy
By Kim Jae-kyoung
Will U.S. President Donald Trump’s administration label South Korea a currency manipulator?
Trump and his administration have said they will combat currency manipulation to support American companies and inject new vigor into the U.S. economy.
In a recent interview, Trump expressed concern about the dollar’s appreciation, saying the greenback was “too strong.”
In a written response following his Senate confirmation hearing, U.S. Treasury Secretary nominee Steven Mnuchin did not rule out naming China a currency manipulator, saying, “If confirmed, I intend to review the issue of Chinese currency manipulation.”
“As treasury secretary, I will ensure that we defend American jobs by combating currency devaluation, utilizing the reporting and monitoring functions of the Treasury and the legislative processes established by Congress.”
If China is named, it is probable the Trump administration will put Korea on the list. This is because the administration not only targets the yuan but also any currencies of export-oriented economies that have enjoyed a trade surplus with the U.S.
“The won has certainly weakened, making imports more expensive and helping exports,” Jeffrey Jones, former chairman of the American Chamber of Commerce in Korea, said.“For several years, the Treasury has been monitoring the foreign exchange reserves and rates for Korea.
“If there is clear evidence of manipulation, it would not hesitate to label Korea a manipulator. I do not believe there will be any attempt for political reasons to name Korea and not China, or China and not Korea. It will depend entirely on the facts as developed by the Treasury.”
Some analysts said Korea won’t be the first target, but it is still possible given Trump’s unpredictability.
“From an economic point of view, Korea has a larger current account surplus and what seems to be a fairly regular intervention in foreign exchange markets,” Antonio Fatas, an economics professor at INSEAD, said. “But from a political point of view, Korea is not China.
“Most Americans might not know much about the exchange rate with Korea but they know about China. So maybe Korea will not be called a currency manipulator. However, given the way Trump is talking, he might try to get as many countries as possible on that list to make a point.”
In its foreign exchange report in October, the Treasury put South Korea on the watch list, citing maintenance of a large current account surplus, an undervalued won, market intervention to limit appreciation and a lack of transparency on intervention.
U.S. law stipulates that any country meeting three statutory criteria is a currency manipulator.
They are a trade surplus with the U.S. exceeding $20 billion; the ratio of the surplus to gross domestic product (GDP) exceeding 3 percent; and the authorities’ intervention in the net purchase of dollars amounting to over 2 percent of GDP. Korea meets the first two.
The Treasury is scheduled to release its next foreign exchange report — which will determine the currency manipulation of major trading partners — on April 15.
If Korea is named as a currency manipulator, U.S. law requires the Trump administration to begin a process to demand special negotiations with Seoul over the issue.
Korean products could be subject to punitive duties, depending on the outcome of negotiations.
Former Morgan Stanley economist Andy Xie expects Korea and other East Asian countries will face mounting pressure to allow their currencies to strengthen against the dollar.
“Trump has complained that East Asian countries have taken advantage of the U.S. for three decades,” he said. “That’s one thing he is consistent with all the time.
“The U.S. will negotiate with East Asian countries to hold up their exchange rates. Otherwise, they will name everyone a manipulator. I think all East Asian economies will comply.They don’t have much leverage, because they are export oriented and need the U.S. market more than the other way around.”
The only way for Korea to avoid being labeled a currency manipulator is to minimize market intervention and have communication with the Trump administration to clarify Korea’s position.
“The Korean government simply needs to be transparent in its reporting and monitoring and be able to explain the discrepancy in the trade figures and foreign currency holdings to avoid the manipulation charge,” Jones said.