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Updated June 22, 2020
Debates over Currency Manipulation
Overview
manipulation has largely been in remission since 2014.
Some Members of Congress and policy experts argue that
However, the dollar has strengthened in recent months
U.S. companies and jobs have been adversely affected by
following the outbreak of the COVID-19 pandemic and
the exchange rate policies adopted by other countries. They
ensuing economic lockdowns (Figure 1), which may renew
allege that these countries use policies to “manipulate” the
currency concerns. A strong dollar makes it more difficult
value of their currency in order to gain an unfair trade
for some U.S. firms to compete against foreign producers.
advantage against other countries, including the United
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
Note: 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. Monthly data through May 2020.
affected, and U.S. producers of import-sensitive goods may
Policy Frameworks Addressing Currency
find it hard to compete with imports from the country. On
Manipulation
the other hand, U.S. consumers who buy imports and U.S.
Multilaterally, members of the International Monetary Fund
businesses that rely on inputs from overseas may benefit,
(IMF) have committed to refraining from manipulating
because goods from the country may be less expensive.
their exchange rates to gain an unfair trade advantage.
Can governments weaken their currencies? Economists
Violators could face loss of IMF funding, suspension of
disagree about whether government policies have long-term
voting rights or, ultimately, expulsion from the IMF. The
effects on exchange rates, particularly for countries with
IMF has never publicly labeled a country as a currency
floating exchange rates. However, some economists assess
manipulator. Some argue that commitments made in the
that, at least in the short run, some government policies can
context of the World Trade Organization (WTO) are
affect the value of currencies. One policy is buying and
relevant to disagreements over exchange rates, although this
selling domestic and foreign currencies (“intervening”) in
view is debated. Exchange rates are also discussed by the
foreign exchange markets. A number of economic policies,
G-7 and the G-20, where commitments to refrain from
including monetary, fiscal, and structural policies, may also
currency manipulation are now routinely emphasized.
affect exchange rate levels but they may be pursued for
Provisions in U.S. law also address currency manipulation.
policy goals unrelated to trade. For example, a central bank
The 1988 Trade Act (P.L. 100-418) requires the Treasury
may adopt expansionary monetary policies to combat a
Department to analyze and report on semiannually the
domestic recession, which may have the simultaneous
exchange rate policies of major U.S. trading partners. If
effect of depreciating the currency.
some countries are found to be manipulating their
Which countries are accused of currency manipulation?
currencies, the act requires the Treasury Secretary, in some
instances, to initiate negotiations to eliminate the “unfair”
There is debate over which countries, if any, are
manipulating their exchange rates. Part of the debate is
trade advantage. Between August 2019 and January 2020,
which, if any, government policies should count as currency
Treasury Secretary Steven Mnuchin labeled China as a
manipulation. Economists have also developed a number of
currency manipulator under the terms of the 1988 Trade
models to estimate whether the actual value of a currency
Act, the first such designation in 25 years.
differs from what it “should” be according to economic
The Trade Facilitation and Trade Enforcement Act of
fundamentals. Various models produce different results.
2015 (P.L. 114-125) adds new reporting requirements and
According to a 2017 study by economists at the Peterson
directs the Treasury Department in some instances to take
Institute for International Economics, currency
action against countries that have: (1) a significant bilateral
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Debates over Currency Manipulation
trade surplus with the United States; (2) a material current
not find that China met the criteria for currency
account surplus; and (3) engaged in persistent, one-sided
manipulation under the terms specified in the Trade
interventions in foreign exchange markets. Some
Facilitation and Trade Enforcement Act of 2015. In
economists contend that, together, these three indicators
response to new currency commitments in the Phase One
suggest currency manipulation. To date, Treasury has not
trade deal between China and the United States, the Trump
found a country that meets all three criteria. However, it has
Administration lifted the designation in January 2020. In
developed a “Monitoring List,” which includes countries
that deal, China committed to refrain from competitive
that meet two of the three criteria currently or in the past
devaluation and not target its exchange rate for competitive
year. The Monitoring List for January 2020 includes China,
purposes, as well as to publish relevant information related
Germany, Italy, Ireland, Japan, Malaysia, Singapore, South
to exchange rates and external balances. Some of these
Korea, Switzerland, and Vietnam.
commitments were modeled after the currency provisions in
the USMCA. Some analysts have criticized the provisions
In 2015, Congress included currency as a principal
as largely reiterating G-20 and IMF commitments and
negotiating objective in Trade Promotion Authority
requiring data already disclosed by the Chinese
legislation for the first time (P.L. 114-26). TPA is the
government.
authority Congress grants to the President to enter into
certain reciprocal trade agreements and to have their
In December 2019, President Trump criticized Brazil
implementing bills considered under expedited legislative
and Argentina for “presiding over a massive devaluation of
procedures when certain conditions have been met.
their currencies,” and announced that as a result, the U.S.
Previously, exchange rates were not generally part of trade
government would convert their steel and aluminum quotas
negotiations.
into tariffs. This statement was controversial. Most
economists do not believe that the Brazilian and
Argentinean governments were purposefully driving down
“Treasury continues to press other economies to
the value of their currencies. The downward trend in
uphold the exchange rate commitments they have
exchange rates was likely driven, economists say, by
made in the G-20, the G-7, and the IMF.” Treasury
domestic economic challenges, with both countries selling
Department, Macroeconomic and Foreign Exchange
foreign exchange reserves to hasten the depreciation of their
Policies of Major Trading Partners of the United States,
currencies. Additionally, some analysts raised concerns that
January 2020.
the steel and aluminum tariffs were intended to address
national security concerns rather than currency disputes.
Trump Administration Actions
Possible Policy Issues
During the 2016 presidential campaign, Donald Trump
How will governments adapt their currency policies to
raised currency manipulation, particularly by China, as a
respond to the COVID-19 pandemic? Some central banks
key issue. Since assuming office, the Trump Administration
may loosen monetary policy to stimulate their economies to
has taken actions to address concerns about the exchange
offset the economic effects of the pandemic. Divergences in
rate policies of other countries.
monetary policy could lead to sharp exchange rate
The United States-Mexico-Canada Agreement
movements. Should countries coordinate their monetary
(USMCA) includes, for the first time in a trade agreement,
and exchange rate policies in response to COVID-19? In
provisions on exchange rates, widely viewed as a template
the context of the pandemic, how should currency
for future trade negotiations. The USMCA implementing
manipulation be conceptualized and defined?
legislation passed the House in December 2019, and the
Would measures to combat currency manipulation
Senate in January 2020 (H.R. 5430). President Trump
serve U.S. economic interests? Weak exchange rates in
signed the implemented legislation in January 2020, and the
other countries can have distributional effects within the
USMCA is to enter into force on July 1, 2020.
United States. U.S. consumers and U.S. businesses that rely
In February 2020, the Commerce Department issued a
on inputs from overseas may benefit when other countries
final rule that paves the way for imposing tariffs on imports
have weak currencies. U.S. producers of import-competing
from countries destermined by the U.S. government to be
products may find it harder to compete, however. An
undervaluing their currency relative to the U.S. dollar.
aggressive response to currency manipulation could also
Various Members of Congress have debated such a policy
trigger retaliation by other countries.
for years, including in 2013 and 2015, but Congress has
If currency manipulation should be addressed, what is
refrained from legislating it due to a variety of concerns,
the proper tool or tools? In addition to including
including questions about compatibility with U.S.
provisions in trade agreements and applying countervailing
obligations under the World Trade Organization (WTO). In
duties, some analysts have called for “countervailing
May 2020, the United Steelworkers filed the first
interventions” in foreign exchange markets and/or
antidumping and countervailing duty petitions under the
addressing currency issues more prominently at the IMF or
new rule. Their petitions focus on tires from South Korea,
WTO. What are the tradeoffs of the different policy
Taiwan, Thailand, and Vietnam.
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
currency to move closer to its market value. Treasury did
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Debates over Currency Manipulation
IF10049
Rebecca M. Nelson, Specialist in International Trade and
Finance
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https://crsreports.congress.gov | IF10049 · VERSION 17 · UPDATED