Mnuchin Says He Won’t Label China a Currency Manipulator...Yet

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  • Treasury to release next currency report in April, he says
  • Dept. can change report criteria to label China manipulator

Mnuchin Says China Yuan Decision Waits Until April Report

Treasury Secretary Steven Mnuchin signaled no urgency to designate China a currency manipulator, saying he wants to use a regular review of foreign-exchange markets to determine if the U.S.’s largest trading partner is cheating.

No announcement on currency manipulation will come before the Treasury’s April report, Mnuchin said in an interview with Bloomberg on Thursday. The decision contradicts an October pledge by candidate Donald Trump to direct his Treasury secretary to name China a manipulator on the first day of his administration.

While Trump said on the campaign trail he would seek to fix large trade imbalances with countries such as China, some administration officials are softening the rhetoric, with Mnuchin saying in the interview he’s had “very good conversations” with his Chinese counterparts.

Mnuchin can use the Treasury’s currency report to reconsider trade negotiations, press the International Monetary Fund to strengthen its surveillance of a country’s exchange-rate policies, or formally designate it a manipulator. While the Obama administration in its October report said China meets only one of three criteria to be labeled as such, the Treasury can change those criteria.

Trump’s Yuan Manipulator Tag May Be More Politics Than Practical

While the U.S. has long accused China of undervaluing its currency to boost exports, Beijing has recently been burning through foreign reserves to support the yuan amid an economic slowdown and capital outflows.

The International Monetary Fund doesn’t consider China a currency manipulator. Mnuchin on Tuesday in a call with IMF chief Christine Lagarde said he wants the fund to “provide frank and candid analysis of the exchange rate policies” of member countries. 

In its last annual assessment of the Chinese economy, the IMF found the value of the yuan “remains broadly in line with fundamentals.”

Mnuchin will also explore issuing debt maturing in more than 30 years to cushion the effect of rising interest rates. With rates expected to be historically low for a long period of time, it “makes sense” for the Treasury to explore 50- and 100-year maturities, he said in a CNBC interview earlier on Thursday. While the Federal Reserve has signaled that rates may go up this year, it’s “really about where we are not relative to just today, but where we are relative to interest rates over a long period of time,” he said.

Treasury officials under the Obama administration were focused on extending the average maturity of U.S. debt holdings to lock in historically low rates since the financial crisis, but weren’t willing to introduce securities with maturities beyond the current maximum of 30 years. Given the previous administration’s goal of keeping issuance regular and predictable in the $13.8 trillion Treasuries market, policy makers have been reluctant to join countries such as Belgium, Canada, France and the U.K. that have issued debt coming due in as long as 100 years.

‘Serious Issue’

“We’ll reach out to the market, investors, different people but I think it’s something that is a very serious issue” that we should explore, he said in a CNBC interview earlier on Thursday.

He also said said the administration’s internal scoring of its tax plan would assume higher growth economic growth projections than an evaluation by the Congressional Budget Office. The Treasury has a team of more than 100 people working to run its own scenarios, he said. The CBO and the Joint Committee on Taxation typically provide estimates on the budgetary effects of proposed tax legislation.

Trump’s preliminary growth forecasts were more positive than projections made by independent agencies and private forecasters. Mnuchin sees the impact of tax cuts feeding into the economy in late 2018, reiterating his goals of reaching at least 3 percent growth.

Border Adjustment

Mnuchin also said he is looking closely at border adjustments, which would tax U.S. businesses’ domestic sales and imported goods while exempting their exports. The border-adjusted tax is a centerpiece of House Speaker Paul Ryan’s tax plan because it would raise revenue and help offset income tax cuts.

Ryan’s plan is to replace the corporate income tax with a new, “border-adjusted” levy on U.S. companies’ domestic sales and imports. The proposal has stirred sharp divisions among businesses: Retailers, automakers and oil refiners that rely on imported goods and materials oppose it, while export-heavy manufacturers support it.

The Treasury chief said he has “some concerns” with the border-adjusted tax. Ryan and House Ways and Means Chairman Kevin Brady have been struggling to gain support for the proposal from other Republicans. The border-adjusted tax is also under attack from retailers and other industries that rely on imported goods.

Watch Next: How Steven Mnuchin Got the Treasury Job

— With assistance by Andrew Mayeda, and Alexis Leondis

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