The US treasury department officially declined yesterday to label China a currency manipulator, breaking one of President Trump's most prominent campaign promises.
In its semi-annual report released on Friday, the Treasury Department said China is not manipulating the value of its currency to gain an unfair trade advantage, but it should do more to reduce its large trade surplus with the United States.
Five other trading partners who were on last October's monitoring list - Japan, South Korea, Taiwan, Germany and Switzerland - also remain on the list, ensuring that the Treasury would apply extra scrutiny to their foreign exchange and economic policies. However, the U.S. Treasury report noted that it will "scrutinize" China's trade and currency intervention practices.
Trump repeatedly pledged in his election campaign to name China as a currency manipulator on his first day in office - prompting fears of a trade war - but did not do so.
Further, the report said that greater transparency of China's exchange rate and reserve management operations and goals was of extreme importance.
During the very first presidential debate against Hilary Clinton, then nominee-Trump stated that the U.S. "cannot be the world's policeman". The designation requires intensive talks between the United States and the designated country and can lead to penalty tariffs imposed by the United States.
South Korea met only two out of three criteria to become a currency manipulator - trade surplus, current account surplus and market intervention.More news: Arsene Wenger: Three at the back not guaranteed to stay
The three are: a significant bilateral trade surplus with the US; a material current account surplus; and the involvement in persistent one-sided intervention in the foreign exchange market. Its surplus with the United States totaled $65 billion past year.
Trump said he was working with the Chinese president to confront North Korea's attempts to develop a missile capable of reaching the United States mainland, saying Xi "understands it's a big problem".
The move was expected as Trump earlier this week had said that China was not a currency manipulator.
The Treasury report's language on Japan was similar to past reports, and focused on the need for structural reforms to improve domestic demand, analysts said.
Trump did say he thought the dollar was "getting too strong" - a comment that sent the US currency falling, though it subsequently rebounded.
The report said the Korean government needs to enhance the flexibility of the exchange rate and the US will continue to monitor the government's intervention. The dollar's strength in the past two years has been a drag on USA exports.
Friendly relations with China is also crucial as Trump tries to tackle the troublesome North Korea.