The U.S. Treasury Department provides a report to Congress each year detailing and assessing developments in international economic and exchange rate policies. This semi-annual report, required by law, focuses on close U.S. trading partners that make up about 78 percent of U.S. foreign trade in goods and services. Given the substantive changes to trade that the United States has adopted since President Donald Trump returned to the White House, this report takes on new significance this year. Brad W. Setser, a senior economics fellow at CFR, went line by line through the executive summary of the June report and broke down the document’s latest conclusions.
Setser: There are no crazy manipulation designations made for political points or other unexpected surprises in this report, but it is still an important document. This report commits the Treasury to making long overdue technical adjustments to its methodology that will increase the odds that countries are labeled “currency manipulators” in the future. Taiwan is at particular risk, as is China. Let’s dive in.
In this Administration, the Secretary of the Treasury will be vigilant in identifying and taking action against currency manipulation. Treasury will also examine other macroeconomic and financial policies implemented by our trading partners that propagate imbalances or result in an unfair competitive advantage in trade.
Sounds tough, but this statement is generally in line with past policy. Most recent Treasury secretaries would be comfortable making these points. In fact, Yellen made this clear in 2021, noting that the intentional targeting of exchange rates is “unacceptable.”
There has been a decline in the scale and persistence of foreign exchange intervention among most major U.S. trading partners in recent years, but the damage done is long lasting, including through the reallocation of supply chains and their associated quality jobs, as well as the loss of the homeland’s ability to manufacture critical defense and industrial equipment.
This statement is new, and sets the analytical foundation for looking at past intervention as well as current intervention in future reports. It is also accurate in my view.
The nominal trade-weighted dollar strengthened 9.0% over the four quarters through December 2024, appreciating against advanced economy currencies by 7.7% and emerging market economy currencies by 10.3%.
This is something that is often missed in the discussion about the dollar’s reserve currency status. The dollar is exceptionally strong, even for a reserve currency. And if the dollar had stayed at its 2024 levels, the U.S. trade deficit would almost certainly have kept on growing.
In this Report, Treasury finds that no major trading partner met all three criteria under the 2015 Act during the four quarters ending December 2024, such that no major trading partner requires enhanced analysis.
This is 100 percent as expected. The big economies just weren’t active in the foreign exchange market in 2024. This year will likely be different, as intervention tends to pick up when the dollar depreciates. Taiwan, for example, added $10 billion to its reserves in May. If this pace of intervention is sustained for several months, that would almost assure that it would meet the criteria in the next foreign exchange report.
Read the full article by Brad W. Setser / Council on Foreign Relations
