President Donald Trump might have reasons to accuse an Asian country of currency manipulation — and it’s not China.
Instead, some analysts argue that Thailand could soon be named to a list of trading partners that the U.S. monitors for possible currency manipulation. Thailand is the U.S.’s 21st-largest goods trading partner, selling machinery, rubber and prepared meat to the U.S.
The U.S. Treasury typically issues two reports on the currency practices of its major trading partners each year, including one in mid-October.
No country was labeled a currency manipulator in the Treasury Department’s last report in April. Still, the addition of new trading partners to the monitoring list resurfaces the risk of a protectionist policy stance from the Trump administration that investors have largely ignored this year.
The Treasury Department focuses on three conditions as it determines whether its trading partners are playing fair.
Those conditions include a trade surplus with the U.S. of at least $20 billion, a current-account surplus of at least three percent of the country’s gross domestic product, and persistent net purchases of foreign currencies that amount to at least 2% of GDP over 12 months.
The last condition is a gauge of intervention to weaken a country’s currency, giving it a competitive edge in trade.
So how does Thailand stack up?
The country’s annual trade surplus with the U.S. stood at $19 billion in 2016, according to data from the U.S. Census Bureau, just shy of the $20 billion level noted by the Treasury.
Thailand’s monthly trade surplus has averaged $1.67 billion this year through August, which if sustained through year-end would result in an annual surplus of just over $20 billion.
Thailand’s current-account surplus totaled 11.4% of its GDP in 2016, according to DBS.
Finally, its foreign-exchange intervention amounted to more than 5% of its GDP in the past year’s worth of balance of payments data, according Brad Setser, a senior fellow at the Council on Foreign Relations.
He wrote last month that Thailand is the country that comes closest to meeting the Treasury Department’s three conditions.
China, meanwhile, met just one of Treasury’s three criteria in April.
The Thai baht has surged roughly 8% against the dollar this year, but it would be up more if the Bank of Thailand hadn’t intervened, said Charnon Boonnuch, head economist at Tisco Securities in Bangkok.
“There’s a very high chance that Thailand will be included in the report,” he said.
The first report under the Trump administration in April added no new trade partners to its list, continuing to highlight China, Japan, South Korea, Taiwan, Germany and Switzerland.
It did not name China a currency manipulator, like Mr. Trump had promised to do, acknowledging that China had intervened to prop up the yuan in 2016 rather than driving it weaker. – CetUSNews
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