The Trump administration appears to view currency manipulation primarily as an issue with China.
But “money” is actually a much larger issue.
Korea, Taiwan and Singapore all have larger current account surpluses, relative to their GDP, than China. All have intervened to limit the appreciation of their currency over the past year. And all three have a long history of intervention, although they intervened somewhat less when the dollar was unusually strong between mid-2014 and mid-2017.
But the country that comes closest to the reunion of the three Criteria the Treasury now uses, following the Bennet Amendment, to determine whether or not a country qualifies for “enhanced bilateral engagement” (what used to be called manipulation) is Thailand.
The three criteria are:
- Intervention (purchases, I suppose) in the foreign exchange market greater than 2% of GDP.
- A current account surplus greater than 3% of GDP.
- A bilateral merchandise surplus with the United States of more than $ 20 billion. *
Thailand easily meets the first two criteria. Its current account surplus soared after the baht depreciated in 2015, and now accounts for nearly 10% of Thailand’s GDP. 10% of GDP is a lot, it’s more than Germany or Korea right now. And roughly equal to China’s pre-crisis surplus at its peak.
Thailand’s intervention in the foreign exchange market, including its intervention in the futures market, has exceeded five percent of its GDP in the last twelve months of balance of payments data. Thailand’s reserves rose sharply in July and August, so there is no doubt that Thailand continued to intervene throughout the third quarter.
It all comes down to the third criterion: a bilateral merchandise surplus with the United States of more than $ 20 billion.
And Thailand is getting closer. Very close.
Its bilateral goods surplus over the last four quarters of US data is over $ 19 billion …
Changing the criteria to include services would not let Thailand get away with it. In 2015, Thailand recorded a small surplus in bilateral services with the United States (see Table 2.2 or Table 2.3 in data on trade in services interactive tables; 2016 data is not yet available, services data have a long lag, and bilateral data is not particularly reliable). Remember that America’s surplus of services is mostly tourism, nothing more important (most services are still hard to deliver across borders and time zones, and, well, our giants IPRs tend to underestimate their intellectual property exports for tax reasons). And Thailand is also strong in tourism: the United States (like China) has a bilateral tourism deficit with Thailand.
Thailand has not historically been covered in detail in the foreign exchange report. He’s not on the watch list in the last foreign exchange report.
He was not “put on notice” so to speak.
It should be. Based on current trends, Thailand’s bilateral surplus is expected to surpass the $ 20 billion mark soon.
Of course, there is an elephant in the room: the Thai crisis of 1997 and Thailand’s belief that the United States did not provide it as much aid at the time as it did in the United States. Mexico.**
But a crisis of the 1990s shouldn’t be a pass twenty years later. Neither Thailand nor Korea for that matter should get a “free prison release” card now because of the events of twenty years ago.
Thailand ran into trouble in 1997 for a multitude of reasons: a credit-fueled real estate boom produced a large current account deficit, many real estate companies took on a lot of foreign-denominated debt as they lacked income in foreign exchange, and Thai banks and finance companies have financed their domestic foreign currency loans with risky short-term borrowing.
But it was also fundamentally lacking in reserves at the time. The aggregate reserves weren’t at all high, and it turned out that Thailand had sold a large part of its reserves in the futures market trying to defend the baht, so it had virtually nothing in it. Bank. By the end of the second quarter of 1997, Thailand had about $ 30 billion in aggregate reserves and had sold nearly $ 30 billion forward. He literally had nothing in the bank.
Thailand’s reserves, however, are much larger now, absolutely and relative to short-term external debt.
Thailand has over $ 180 billion in reserves and bought $ 30 billion in the futures market, so its reserves are higher than the overall figure. Total reserves, counting forward, are about 50% of Thailand’s GDP, and its short-term debt is just over 10% of its GDP.
So, while Thailand was in dire need of replenishing its reserves and reducing its debt after its 1997 crisis, it subsequently went too far – and is intervening clearly enough now to keep its currency low, not because that she needs more reserves to protect herself from another crisis.
A current account surplus of 10% of GDP and reserves of almost 50% of GDP make Thailand a small-scale digital version of China in around 2007. ***
Well, Thailand’s intervention is having an impact on the US economy.
Thailand is a big producer of auto parts and other manufactured goods nowadays, not primarily a commodity exporter. **** Perhaps a portion of the over $ 3 billion of telecommunications equipment imports, the $ 3 billion in auto parts (including tires) imports from Thailand and $ 0.75 billion in home appliance imports are crowding out other imports, but competition from places like Thailand is also putting pressure on other countries to keep their exchange rates artificially low. It all adds up.
One final point: designating a country for “enhanced bilateral engagement” does not automatically lead to significant sanctions, and even less to a trade war. The penalties described in the Bennet Amendment are fairly light. But that would force a dialogue. And, well, if the Bennet sanctions are too soft for the Trump administration to taste, they could still experiment with it. counter-intervention.
* I am not a big fan of the bilateral balance criteria. On the one hand, I think it allows the NIEs (Hong Kong, South Korea, Singapore and Taiwan) to get off a bit too easily, as they export coins to China and thus represent a part of the Chinese surplus! But more generally, there is no particular reason to believe that a bilateral surplus with the United States alone signals an unhealthy overall trade structure. But in the current case of Thailand, its bilateral surplus with the United States is a component of its overall surplus, and the overall surplus is clearly quite large.
** Thailand did not obtain a bilateral line of credit from the Treasury’s Foreign Exchange Stabilization Fund in 1997, in part due to congressional restrictions on its use after Mexico. But I think the reality is that the use of the Exchange Stabilization Fund is the exception and not the rule. was thus able to repay the Treasury fairly quickly.
*** The combined current account surplus of the NIS, Malaysia and Thailand in 2016 was around $ 300 billion, significantly more than China’s $ 200 billion surplus in 2016. The Malaysia is the only one of these six not to have intervened this year to limit the assessment.
**** Thailand’s commodity exports are actually down a bit: the United States imports less Thai seafood these days, and the United States no longer imports oil from Thailand. (A few years ago, the United States imported half a billion of oil from Thailand – there are often surprises hidden in bilateral figures).