International Trade: Treasury Assessments Have Not Found Currency Manipulation, but Concerns about Exchange Rates Continue

The 1988 Trade Act requires the Department of the Treasury to annually assess whether countries manipulate their currencies for trade advantage and to report semiannually on specific aspects of exchange rate policy. Some observers have been concerned that China and Japan may have maintained undervalued currencies, with adverse U.S. impacts, which has brought increased attention to Treasury's assessments. In 2004, Congress mandated that Treasury provide additional information about currency manipulation assessments, and Treasury issued its report in March 2005. Members of Congress have continued to propose legislation to address China currency issues. We examined (1) Treasury's process for conducting its assessments and recent results, particularly for China and Japan; (2) the extent to which Treasury has met legislative reporting requirements; (3) experts' views on whether or by how much China's currency is undervalued; and (4) the implications of a revaluation of China's currency for the United States. In commenting on a draft of this report, Treasury emphasized it does consider the impact of the exchange rate on the economy, and factors influencing exchange rates also affect U.S. production and competitiveness.