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Updated January 28, 2020
Debates over Currency Manipulation
Overview
According to a 2017 study by economists at the Peterson
Some Members of Congress and policy experts argue that
Institute for International Economics, currency
U.S. companies and jobs have been adversely affected by
manipulation has largely been in remission since 2014.
the exchange rate policies adopted by other countries. They
However, a relatively strong U.S. dollar (Figure 1), may be
allege that these countries use policies to “manipulate” the
fueling recent concerns. A strong dollar makes it more
value of their currency in order to gain an unfair trade
difficult for some U.S. firms to compete against foreign
advantage against other countries, including the United
producers.
States.
Figure 1. Nominal Broad Dollar Index
Other analysts are more skeptical about currency
manipulation being a significant problem. They raise
questions about whether government policies have long-
term effects on exchange rates, whether it is possible to
differentiate between “manipulation” and legitimate central
bank activities, and the net effect of currency manipulation
on the U.S. economy.
Background
What is currency manipulation? At the heart of current
debates is whether or not other countries are using policies
to intentionally weaken the value of their currency, or
sustain a weak currency, to gain a trade advantage. If
another country weakens its currency relative to the dollar,
U.S. exports to the country may be more expensive and
Source: Federal Reserve.
U.S. imports from the country may be less expensive. As a
Notes: An increase on the graph represents an appreciation of the
result, U.S. exports to the country may be negatively
U.S. dol ar against other currencies.
affected, and U.S. producers of import-sensitive goods may
find it hard to compete with imports from the country. On
Policy Frameworks Addressing Currency
the other hand, U.S. consumers who buy imports and U.S.
Manipulation
businesses that rely on inputs from overseas may benefit,
Multilaterally, members of the International Monetary Fund
because goods from the country may be less expensive.
(IMF) have committed to refraining from manipulating
Can governments weaken their currencies? Economists
their exchange rates to gain an unfair trade advantage.
disagree about whether government policies have long-term
Violators could face loss of IMF funding, suspension of
effects on exchange rates, particularly for countries with
voting rights or, ultimately, expulsion from the IMF. The
floating exchange rates. However, some economists assess
IMF has never publicly labeled a country as a currency
that, at least in the short run, some government policies can
manipulator. Some argue that commitments made in the
impact the value of currencies. One policy is buying and
context of the World Trade Organization (WTO) are
selling domestic and foreign currencies (“intervening”) in
relevant to disagreements over exchange rates, although this
foreign exchange markets. A number of economic policies,
view is debated. Exchange rates are also discussed by the
including monetary, fiscal, and structural policies, may also
G-7 and the G-20, where commitments to refrain from
affect exchange rate levels but they may be pursued for
currency manipulation are now routinely emphasized.
policy goals unrelated to trade. For example, a central bank
Provisions in U.S. law also address currency manipulation.
may adopt expansionary monetary policies to combat a
The 1988 Trade Act (P.L. 100-418) requires the Treasury
domestic recession, which may have the simultaneous
Department to analyze and report on semiannually the
effect of depreciating the currency.
exchange rate policies of major U.S. trading partners. If
Which countries are accused of currency manipulation?
some countries are found to be manipulating their
There is debate over which countries, if any, are
currencies, the Act requires the Treasury Secretary, in some
manipulating their exchange rates. Part of the debate is
instances, to initiate negotiations to eliminate the “unfair”
which, if any, government policies should count as currency
trade advantage. Between August 2019 and January 2020,
manipulation. Economists have also developed a number of
Treasury Secretary Steven Mnuchin labeled China as a
models to estimate whether the actual value of a currency
currency manipulator under the terms of the 1988 Trade
differs from what it “should” be according to economic
Act, the first such designation in 25 years.
fundamentals. Various models produce different results.
The Trade Facilitation and Trade Enforcement Act of
2015 (P.L. 114-125) adds new reporting requirements and
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Debates over Currency Manipulation
directs the Treasury Department in some instances to take
currency to move closer to its market value. Treasury did
action against countries that have: (1) a significant bilateral
not find that China met the criteria for currency
trade surplus with the United States; (2) a material current
manipulation under the terms specified in the Trade
account surplus; and (3) engaged in persistent, one-sided
Facilitation and Trade Enforcement Act of 2015. In
interventions in foreign exchange markets. Some
response to new currency commitments in the Phase One
economists contend that, together, these three indicators
trade deal between China and the United States, the Trump
suggest currency manipulation. To date, Treasury has not
Administration lifted the designation in January 2020. In
found a country that meets all three criteria. However, it has
that deal, China committed to refrain from competitive
developed a “Monitoring List,” which includes countries
devaluation and not target its exchange rate for competitive
that meet two of the three criteria currently or in the past
purposes, as well as to publish relevant information related
year. The Monitoring List for January 2020 includes China,
to exchange rates and external balances. Some of these
Germany, Italy, Ireland, Japan, Malaysia, Singapore, South
commitments were modeled after the currency provisions in
Korea, Switzerland, and Vietnam.
the USMCA. Some analysts have criticized the provisions
as largely reiterating G-20 and IMF commitments and
In 2015, Congress included currency as a principal
requiring data already disclosed by the Chinese
negotiating objective in Trade Promotion Authority
government.
legislation for the first time (P.L. 114-26). TPA is the
authority Congress grants to the President to enter into
In December 2019, President Trump criticized Brazil
certain reciprocal trade agreements and to have their
and Argentina for “presiding over a massive devaluation of
implementing bills considered under expedited legislative
their currencies,” and announced that as a result, the U.S.
procedures when certain conditions have been met.
government would convert their steel and aluminum quotas
Previously, exchange rates were not generally part of trade
into tariffs. This statement was controversial. Most
negotiations.
economists do not believe that the Brazilian and
Argentinean governments were purposefully driving down
the value of their currencies. The downward trend in
“Treasury continues to press other economies to
exchange rates was likely driven, economists say, by
uphold the exchange rate commitments they have
domestic economic challenges, with both countries selling
made in the G-20, the G-7, and the IMF.” Treasury
foreign exchange reserves to hasten the depreciation of their
Department, Macroeconomic and Foreign Exchange
currencies. Additionally, some analysts raised concerns that
Policies of Major Trading Partners of the United States,
the steel and aluminum tariffs were intended to address
January 2020.
national security concerns rather than currency disputes.
Possible Policy Issues
Trump Administration Actions
How should currency manipulation be defined and
During the 2016 presidential campaign, Donald Trump
measured? Some argue that the IMF’s definition of
raised currency manipulation, particularly by China, as a
currency manipulation requires it to determine that policies
key issue. Since assuming office, the Trump Administration
shaping the exchange rate level have been for the express
has taken actions to address concerns about the exchange
purpose of increasing net exports, and that intent is hard to
rate policies of other countries.
establish. Analysts also disagree on how to calculate or
The proposed United States-Mexico-Canada
estimate whether currencies are misaligned from their
Agreement (USMCA) includes, for the first time in a trade
equilibrium long-term value, complicating the classification
agreement, provisions on exchange rates, widely viewed as
of currencies as over- or under-valued.
a template for future trade negotiations. The USMCA
Would measures to combat currency manipulation
implementing legislation passed the House in December
serve U.S. economic interests? Weak exchange rates in
2019, and the Senate in January 2020 (H.R. 5430). The
other countries can have distributional effects within the
trade agreement is pending ratification by the Canadian
United States. U.S. consumers and U.S. businesses that rely
government.
on inputs from overseas may benefit when other countries
In May 2019, the Commerce Department issued a
have weak currencies. U.S. producers of import-competing
notice of proposed rulemaking to provide regulatory
products may find it harder to compete, however. An
authority to impose countervailing duties on imports from
aggressive response to currency manipulation could also
countries determined by the U.S. government to be acting
trigger retaliation by other countries.
to undervalue their currency relative to the U.S. dollar. No
If currency manipulation should be addressed, what is
actions have been taken after public comment period ended
the proper tool or tools? In addition to including
in late June 2019. Members of Congress have for years
provisions in trade agreements and applying countervailing
discussed using countervailing duties to combat currency
duties, some analysts have called for “countervailing
manipulation, but it is controversial. Concerns focus on
interventions” in foreign exchange markets and/or
how it could be operationalized, whether it is consistent
addressing currency issues more prominently at the IMF or
with U.S. obligations under the World Trade Organization
WTO. What are the tradeoffs of the different policy
(WTO), and whether it would help the U.S. economy.
options? Which most effectively address U.S. concerns?
Treasury’s designation of China as a currency
For more information, see CRS Report R43242, Debates
manipulator in August 2019 under the 1988 Trade Act was
over Exchange Rates: Overview and Issues for Congress,
controversial. Most economists assess that China’s actions
by Rebecca M. Nelson.
immediately preceding the designation allowed the Chinese
https://crsreports.congress.gov
Debates over Currency Manipulation
IF10049
Rebecca M. Nelson, Specialist in International Trade and
Finance
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https://crsreports.congress.gov | IF10049 · VERSION 14 · UPDATED