South Korea avoided currency manipulator tag by the United States, one of its biggest trading partners, but remained on the monitoring list for possible engagement of unfair currency practice suggesting the risk that the country would be charged with intentional currency devaluation is still high.
“No major trading partner of the United States was named as currency manipulator,” the U.S. Treasury Department said its first semi-annual foreign exchange report released under U.S. President Donald Trump on Friday (local time).
It has been speculated that Korea would be designated as a currency manipulator by the U.S. along with China since Mr. Trump took office in January. To avoid the risk, Korea has cut its net purchase of the U.S. dollars and expanded its import of the U.S. commodities. The country has decided to import shale gas worth as much as 2.8 million tons annually from the U.S. over the next 20 years starting 2017. In result, Korea’s trade surplus with the U.S. dropped 25 percent to $3.88 billion in the first two months of this year from a year ago.
But the country was again added to its monitoring list for countries with high risks of any unfair currency practice. “Korea has a track record of asymmetric foreign exchange interventions,” according to the report that also urged the country “to enhance the flexibility of the exchange rate and will be closely monitoring Korea’s currency intervention practices.”
On Monday, the dollar closed at 1,137.70 won, down 0.20 percent from the previous session.
The U.S. Treasury Department releases a semi-annual report on foreign exchange policies of major U.S trading partners in April and October under the Trade Facilitation and Trade Enforcement Act of 2015. Under the law, it has established thresholds for the three criteria to judge whether a certain U.S. trading partner’s foreign exchange policy goes against U.S. trade interests: a significant bilateral trade surplus with the U.S. at least $20 billion, a material current account surplus at least 3 percent of gross domestic product (GDP), and net purchases of foreign currency totaling at least 2 percent of GDP. If a country meets all three, it would be branded as a currency manipulator by the U.S. which would trigger potential penalties and retaliatory actions.
As Korea met two of the three criteria having a significant bilateral surplus and material current account surplus with the U.S., it was left on the monitoring list for the third time in a row since April last year, along with China, Japan, Taiwan, Germany and Switzerland.
The risk to be labeled as a currency manipulator is still high for Korea as the U.S. is also expected to continue to take a stern stance against any foreign exchange practices to be engaged by its trading partners that would cause the world’s biggest economy’s trade imbalance. The U.S. is “not tolerant” to continued deficit in global trades “any more,” the Financial Times reported citing Wilbur Ross, U.S. commerce secretary.
Korea should take a caution against possible trade friction as warned in the latest U.S. report which took notice of its significant bilateral trade surplus with the U.S. with a surplus of $28 billion in 2016 as well as the “undervalued” Korean won in the International Monetary Fund (IMF)’s latest assessment.
By Kim Se-woong and Na Hyun-joon
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