The Trump administration on Tuesday declined to label China a currency manipulator despite President Trump’s repeated complaint that Beijing has weakened the renminbi as a way to take advantage of the United States on trade.
The decision to not formally accuse China of manipulating its currency could avoid further escalating tensions between Washington and Beijing, which have grown heated after a breakdown in trade negotiations this month.
China remains on the Treasury Department’s watch list, along with the “currency practices” of Germany, Ireland, Italy, Japan, Malaysia, Singapore, South Korea and Vietnam. And the report continued to raise concerns about China’s activity in managing its currency.
The Treasury Department said it had “significant concerns” about China’s currency practices and criticized the Chinese government for lacking transparency in how it manages foreign exchange. It noted that the renminbi had fallen by 8 percent in the last year and that China’s bilateral trade surplus in goods with the United States grew to $419 billion as of the end of 2018.
“The outsized magnitude of the bilateral deficit is a result of China’s persistent and widespread use of nontariff barriers, nonmarket mechanisms, state subsidies and other discriminatory measures that are increasingly distorting China’s trading and investment relationships,” the report said. “These practices tend to limit Chinese demand and market access for imported goods and services, leading to a wider trade surplus.”
The report comes as the United States and China are locked in a protracted trade war. The United States raised tariff rates on $200 billion worth of Chinese imports and is considering imposing tariffs on another $300 billion. China has vowed to hit back with tariffs or other punitive measures of its own.
The biannual currency exchange report — the fifth of Mr. Trump’s presidency — also updated its criteria for designating countries as currency manipulators, allowing the United States to monitor the foreign exchange practices of a broader set of economies.
The Treasury Department determines whether a country should be labeled a currency manipulator based on bilateral trade deficits and signs that a country is depressing its currency. The United States has not officially designated another country a manipulator since it assigned that label to China in 1994. Doing so is supposed to prompt negotiations to resolve the problem, but in practice the punitive measures that the designation allows are minor.
The changes put in place in the latest report broadened the criteria necessary to generate the “manipulator” label and gave the Treasury Department more authority to monitor a wider range of countries. Any nation whose trade in goods with the United States exceeds $40 billion will now be monitored.
In addition, if a country actively intervenes in foreign exchange markets for six out of 12 months, rather than the current eight-month threshold, it will be closer to being flagged for manipulation.
A Treasury Department official said that even with the new thresholds, no country in recent years would have been designated. China meets only one of the thresholds, but the department used its discretion to add it to the watch list because of the size of its trade surplus.
Last week, the Commerce Department proposed a rule change that would allow the United States to expand its ability to penalize countries that manipulate their currencies.
It proposed expanding a type of remedy that is typically used to levy tariffs on products that are determined to be unfairly subsidized by foreign governments. Under the proposed rule, so-called countervailing duties could be imposed when foreign governments “subsidize” their products by weakening their currencies relative to the United States dollar, the department said.
A senior Treasury Department official said the Commerce Department proposal was a separate matter that would not affect how the Treasury executed its designations.
Although the Trump administration has complained about China’s currency practices, the Treasury secretary, Steven Mnuchin, said during a congressional hearing last week that the weakening of China’s currency would help minimize the impact of Mr. Trump’s tariffs on Chinese goods.
As a presidential candidate, Mr. Trump made labeling China a currency manipulator a central plank of his economic policy, promising in his “contract” with American voters that he would direct the secretary of the Treasury to label China a currency manipulator in the first 100 days of his presidency.
While the Treasury has not yet done so, the administration has used other avenues to push China to refrain from manipulating its currency, primarily through trade negotiations with Beijing.
During a meeting between the American and Chinese delegations at the White House in February, Mr. Mnuchin said that a currency agreement between the two countries had been reached.
“We actually concluded and reached an agreement — one of the strongest agreements ever on currency,” Mr. Mnuchin said.
At that meeting, Mr. Trump said currency manipulation was “a very important subject which a lot people didn’t even think in terms of.”
American officials described the agreement as a pledge by China not to devalue its currency and to improve transparency around its foreign exchange practices.
In March, the governor of China’s central bank, Yi Gang, described the agreement as an understanding that both countries would avoid devaluing their currencies to achieve a competitive advantage for their exports.
He said that both countries would also continue to comply with previous currency agreements among the Group of 20 economies, and maintain close communication about currency markets and disclose detailed information in accordance with International Monetary Fund standards.
Democrats have been pushing Mr. Trump not to settle for a weak deal with China and they seized on the report on Tuesday as sign that the president was being too soft.
“This is the fifth time in a row that the Trump administration has refused to label China a currency manipulator,” said Senator Chuck Schumer, Democrat of New York and the minority leader. “I hope this does not portend the administration backing off on Huawei or trade. It would be a tragedy for American workers if they did.”
With trade negotiations between the two countries at an impasse, however, it is unclear when or whether the two sides will come to a formal agreement that includes a currency provision. Mr. Trump has accused China of backing out of a trade pact with the United States and said on Monday during a trip to Japan that he was “not ready to make a deal.”
While no further discussions between the two countries are scheduled, Mr. Trump said he believed China would eventually agree to America’s trade terms.
“I think, sometime in the future, China and the United States will absolutely have a great trade deal,” he said.