Macroeconomic and 

Foreign Exchange 

Policies of Major 

Trading Partners of the 

United States

REPORT TO CONGRESS

U.S. DEPARTMENT OF THE TREASURY

OFFICE OF INTERNATIONAL AFFAIRS

January 2020
Contents

EXECUTIVE SUMMARY......................................................................................................................... 1

SECTION 1: GLOBAL ECONOMIC AND EXTERNAL DEVELOPMENTS...................................10

U.S. ECONOMIC TRENDS ....................................................................................................................................10

INTERNATIONAL ECONOMIC TRENDS...............................................................................................................14

ECONOMIC DEVELOPMENTS IN SELECTED MAJOR TRADING PARTNERS......................................................20

SECTION 2: INTENSIFIED EVALUATION OF MAJOR TRADING PARTNERS.......................38

KEY CRITERIA .....................................................................................................................................................38

SUMMARY OF FINDINGS .....................................................................................................................................41

GLOSSARY OF KEY TERMS IN THE REPORT ...............................................................................43

This Report reviews developments in international economic and exchange rate policies

and is submitted pursuant to the Omnibus Trade and Competitiveness Act of 1988, 22

U.S.C. § 5305, and Section 701 of the Trade Facilitation and Trade Enforcement Act of 2015,

19 U.S.C. § 4421.1

 1 The Treasury Department has consulted with the Board of Governors of the Federal Reserve System and

International Monetary Fund management and staff in preparing this Report.
1

Executive Summary

The global economy continued to slow in 2019. Growth has held up well in the United

States, but has decelerated in many other major economies as a diverse range of challenges

weigh on global activity. These include political uncertainty in many European and Latin

American countries, financial turbulence in some large emerging markets, China’s efforts to

address corporate debt vulnerabilities, and ongoing geopolitical tensions. Growth has also

been held back by inadequate policy support, especially from fiscal policy, as well as

elevated leverage in both the private and public sectors in major economies. The

International Monetary Fund (IMF) forecast global growth at 3.0 percent in 2019, its

slowest pace since the global financial crisis.

In this context, it is critical that fiscal and structural policies in major economies work in

tandem with monetary support to bolster near-term activity and medium-term growth

prospects. Many countries, particularly Germany, the Netherlands, and Korea, have

sufficient fiscal space for substantial pro-growth stimulus, which could help reduce the

pressure for further monetary accommodation. Structural reforms are also needed to lay

the foundation for stronger medium-term growth. While priorities vary across economies,

needed measures include tax cuts to facilitate stronger investment and encourage labor

force participation; regulatory reforms to boost private sector-led growth; and establishing

a level playing field for trade.

The Administration is working actively to dismantle unfair barriers to trade and achieve

fairer and more reciprocal trade with major U.S. trading partners. This includes

combatting unfair currency practices that facilitate competitive advantage, such as

unwarranted intervention in currency markets. The United States-Mexico-Canada

Agreement (USMCA) incorporates commitments to avoid unfair currency practices and

publish related economic information. Additionally, in March Korea for the first time began

reporting publicly on its foreign exchange intervention, a development that Treasury

welcomes. While transparency on foreign exchange reserves and intervention has

generally improved over recent years, many economies still need to improve the

transparency and quality of data on reserves and intervention.

Treasury has been engaging closely with China over developments in the Chinese renminbi

(RMB). China has a long history of facilitating an undervalued currency through

protracted, one-sided intervention in the foreign exchange market and other tools. Over

the summer, China took concrete steps to devalue the RMB. Subsequently, Treasury

determined under Section 3004 of the Omnibus Trade and Competitiveness Act of 1988

that China was a currency manipulator, given that the purpose of China’s devaluation was

to gain unfair competitive advantage in international trade. 

Intensive trade and currency negotiations between the United States and China over the

last few months resulted in a Phase One agreement that requires structural reforms and

other changes to China’s economic and trade regime in several key areas, including

currency and foreign exchange issues. In this agreement, China has made enforceable

commitments to refrain from competitive devaluation and not target its exchange rate for
2

competitive purposes. China has also agreed to publish relevant information related to

exchange rates and external balances. Meanwhile, after depreciating as far as 7.18 RMB

per U.S. dollar in early September, the RMB subsequently appreciated in October and is

currently trading at about 6.93 RMB per dollar. 

In this context, Treasury has determined that China should no longer be designated as a

currency manipulator at this time.

Treasury continues to press other economies to uphold the exchange rate commitments

they have made in the G-20, the G-7, and the IMF. All G-20 members have agreed that

strong fundamentals, sound policies, and a resilient international monetary system are

essential to the stability of exchange rates, contributing to strong and sustainable growth

and investment. G-20 members have also committed to refrain from competitive

devaluations and not target exchange rates for competitive purposes. G-7 economies,

meanwhile, remain committed to market-determined exchange rates, to using domestic

tools to meet domestic objectives, and to consult closely and cooperate as appropriate in

regard to action in foreign exchange markets. IMF members have committed to avoid

manipulating exchange rates to gain an unfair competitive advantage over other members. 

While there has been a decline in the scale and persistence of foreign exchange

intervention among most major U.S. trading partners in recent years, this has come during

a period in which the dollar has generally been strong relative to historical averages and

there have been less persistent appreciation pressures across other currencies. In this

context, Treasury will continue to monitor closely the extent to which intervention by our

trading partners is symmetrical, and whether economies that choose to smooth exchange

rate movements resist depreciation pressure in the same manner as appreciation pressure. 

Treasury remains disturbed by the persistent and excessive trade and current account

imbalances that mark the global economy. The U.S. trade deficit in non-oil goods has

reached new historical highs over the last year, rising above 4 percent of GDP. Meanwhile,

the trade and current account surpluses of several major U.S. trading partners remain at

extremely high levels. In aggregate, the current account surpluses of China combined with

the major U.S. trading partners covered in this Report whose surplus exceeds 2 percent of

GDP totaled $1.1 trillion over the four quarters through June 2019, or around 1.3 percent of

global GDP. Subdued real interest rates across the global economy are a symptom of

substantial excess saving that is not being productively employed within the domestic

economies of Germany, the Netherlands, China, and other major economies. In order to

achieve stronger and more balanced global growth, key economies that have maintained

large and persistent external surpluses must pursue reforms that will revitalize

domestically driven growth, create productive opportunities for investment, and spark

private sector-led growth.

Treasury Analysis Under the 1988 and 2015 Legislation

The Omnibus Trade and Competitiveness Act of 1988 (the “1988 Act”) requires the

Secretary of the Treasury to provide semiannual reports to Congress on international
3

economic and exchange rate policy. Under Section 3004 of the 1988 Act, the Secretary

must:

“consider whether countries manipulate the rate of exchange between their currency

and the United States dollar for purposes of preventing effective balance of payments

adjustments or gaining unfair competitive advantage in international trade.” 

This determination may encompass analysis of a broad range of factors, including not only

trade and current account imbalances and foreign exchange intervention (criteria under

the second piece of legislation discussed below), but also currency developments, the

design of exchange rate regimes and exchange rate practices, foreign exchange reserve

coverage, capital controls, monetary policy, and trade policy actions, as well as foreign

exchange activities by quasi-official entities that may be undertaken on behalf of official

entities, among other factors.

The Trade Facilitation and Trade Enforcement Act of 2015 (the “2015 Act”) calls for the

Secretary to monitor the macroeconomic and currency policies of major trading partners

and conduct enhanced analysis of and engagement with those partners if they trigger

certain objective criteria that provide insight into possibly unfair currency practices. 

In this Report, Treasury has reviewed 20 major U.S. trading partners with bilateral goods

trade with the United States of at least $40 billion annually against the thresholds Treasury

has established for these three criteria:

(1) A significant bilateral trade surplus with the United States is one that is at least $20

billion over a 12-month period.

2 This threshold captures a group of trading partners

that represented three-fourths of the value of all trade surpluses with the United States

in 2018. It also captures all trading partners with a trade surplus with the United States

that is larger than about 0.1 percent of U.S. GDP.

(2) A material current account surplus is one that is at least 2 percent of gross domestic

product (GDP) over a 12-month period. This threshold captures a group of economies

that accounted for more than 90 percent of the nominal value of current account

surpluses globally in 2018.

(3) Persistent, one-sided intervention occurs when net purchases of foreign currency

are conducted repeatedly, in at least 6 out of 12 months, and these net purchases total

at least 2 percent of an economy’s GDP over a 12-month period.3 Looking over the last

 2 The report covers data from the 12 month period ending June 2019. Given data limitations, Treasury

focuses in this Report on trade in goods, not including services. The United States has a surplus in services

trade with many economies in this report, including China, Japan, Korea, Singapore, Switzerland, and Ireland. 

Taking into account services trade would reduce the bilateral trade surplus of these economies with the

United States. 3 These quantitative thresholds for the scale and persistence of intervention are considered sufficient on their

own to meet the criterion. Other patterns of intervention, with lesser amounts or less frequent interventions,

might also meet the criterion depending on the circumstances of the intervention.
4

two decades, this quantitative threshold would capture all significant instances of

sustained, asymmetric foreign exchange purchases by major U.S. trading partners.

Treasury’s goal in establishing these thresholds is to identify where potentially unfair

currency practices or excessive external imbalances may be emerging that could weigh on

U.S. growth or harm U.S. workers and businesses.

Because the standards and criteria in the 1988 Act and the 2015 Act are distinct, an

economy could be found to meet the standards identified in one of the Acts without being

found to have met the standards identified in the other. 

Treasury Conclusions Related to China

China has a long history of pursuing a variety of economic and regulatory policies that lead

to a competitive advantage in international trade, including through facilitating the

undervaluation of the RMB. Moreover, in recent years, China has shifted from a policy of

gradual economic liberalization to one of reinforcing state control and increasing reliance

on non-market mechanisms. The pervasive use of explicit and implicit subsidies as well as

non-tariff barriers and other unfair practices are increasingly distorting China’s economic

relationships with its trading partners. This Administration has made it clear that the

United States will confront China’s unfair practices — including forced technology transfer,

weak intellectual property rights protection, and industrial subsidies — and will strive for

a fairer and more balanced economic relationship. 

Over the summer, China took concrete steps to devalue its currency, while maintaining

substantial foreign exchange reserves despite active use of such tools in the past. At the

time, the Chinese authorities acknowledged that they had ample control over the RMB

exchange rate. In August, Treasury determined under the 1988 Act that China was a

currency manipulator.

Since August, Treasury has held negotiations with the PBOC over currency issues to

eliminate the unfair competitive advantage created by China’s latest actions. More broadly,

the United States and China have negotiated and recently reached a Phase One agreement

that covers selected issues on trade and currency. In this agreement, China has made

enforceable commitments to refrain from competitive devaluation and not target its

exchange rate for competitive purposes. China has also agreed to publish relevant

information related to exchange rates and external balances. Treasury has determined that

China should no longer be designated as a currency manipulator at this time.

• China needs to take the necessary steps to avoid a persistently weak currency. The

depreciation over August and early September left the RMB at its weakest level against

the dollar in over 11 years and weakest level on a trade-weighted basis since the

introduction of PBOC’s CFETS basket in 2014. The RMB subsequently appreciated in

October and is recently trading at about 6.93 per dollar. Improved economic

fundamentals and structural policy settings would underpin a stronger RMB over time.
5

China does not publish foreign exchange intervention data, leading Treasury staff to

estimate the scale of China’s intervention, both directly by the PBOC and indirectly

through state-owned banks. The PBOC appears to have largely refrained from

intervening in foreign exchange markets in 2019, but financial entities beyond the

PBOC (notably state banks) purchased foreign exchange on net over the first six months

of 2019. China should also increase public understanding of the relationship between

the PBOC and the foreign exchange activities of the state-owned banks, including in the

offshore RMB market.

China’s current account surplus rose over the first half of 2019, reaching 1.2 percent of

GDP over the four quarters through June 2019, making China’s surplus the third largest

in the world in nominal terms at $166 billion over this period. Moreover, China

continues to run an extremely large and persistent trade surplus with the United States,

dwarfing all other trade imbalances between the United States and its other major

trading partners, with the bilateral goods trade surplus totaling $401 billion over the

four quarters through June 2019, equivalent to 45 percent of the total U.S. goods trade

deficit over this period. China needs to take additional policy measures to stimulate

domestic demand and reduce the Chinese economy’s reliance on investment and

exports. 

Treasury Assessments of Other Major Trading Partners

Pursuant to the 2015 Act, Treasury has found in this Report that no major trading partner

met all three criteria during the four quarters ending June 2019. Treasury has also

concluded that no major trading partner of the United States other than China met the

standards identified in Section 3004 of the 1988 Act during the relevant period.

Regarding the 2015 legislation, Treasury has established a Monitoring List of major trading

partners that merit close attention to their currency practices and macroeconomic policies. 

An economy meeting two of the three criteria in the 2015 Act is placed on the Monitoring

List. Once on the Monitoring List, an economy will remain there for at least two

consecutive Reports to help ensure that any improvement in performance versus the

criteria is durable and is not due to temporary factors. As a further measure, this

Administration will add and retain on the Monitoring List any major trading partner that

accounts for a large and disproportionate share of the overall U.S. trade deficit even if that

economy has not met two of the three criteria from the 2015 Act. In this Report, in

addition to China, the Monitoring List comprises Japan, Korea, Germany, Italy,

Ireland, Singapore, Malaysia, Vietnam, and Switzerland, the latter being added to the

Monitoring List in this Report.

With regard to the other nine economies on the Monitoring List:

• Japan maintains the third-largest bilateral goods trade surplus with the United States, at

$69 billion over the four quarters through June 2019. Japan’s current account surplus

over the four quarters through June 2019 was 3.4 percent of GDP, down from

4.1 percent of GDP in the year prior. Japan has not intervened in the foreign exchange
6

market since 2011. Treasury’s firm expectation is that in large, freely-traded exchange

markets, intervention should be reserved only for very exceptional circumstances with

prior consultations. Treasury considers it paramount that countries uphold the

framework for foreign exchange policy management expressed in their G-7 and G-20

commitments, particularly in the event of appreciation pressures. To help bolster the

economy, Japan should build upon its recent economic momentum to enact bolder

structural reforms to strengthen domestic demand, support innovation and create a

more sustainable growth path over the long term, which would help reduce Japan’s

public debt burden and trade imbalances. 

• Korea’s large external surpluses continued to moderate, as the current account surplus

narrowed to 4.0 percent of GDP over the four quarters ending in June 2019. Korea’s

goods trade surplus with the United States has edged slightly up since 2018 to just

above $20 billion over four quarters through June 2019, driven by increased Korean

exports to the United States. Given the still-large external surpluses and a deteriorating

growth outlook, fiscal policy should be used proactively to support both near-term

activity and medium-term output. Treasury assesses that on net the authorities

intervened to support the won over the first half of 2019, making net sales of foreign

exchange. The won depreciated 3.7 percent against the dollar in 2019, also

depreciating on a real effective basis, as growth has slowed to a six-year low. Treasury

welcomes Korea’s commitment to increasing the transparency of its foreign exchange

intervention and its disclosure in September of Korea’s intervention activity in the first

half of 2019. The authorities should limit currency intervention to only exceptional

circumstances of disorderly market conditions. 

 

• Germany’s current account surplus declined modestly in the first half of 2019, but

remains the largest in the world in nominal dollar terms at $283 billion over the four

quarters through June 2019. Meanwhile, Germany’s bilateral goods trade surplus with

the United States has been broadly stable and sits at $67 billion over the four quarters

through June 2019. The persistence of the massive current account surplus and the

large bilateral trade imbalance with the United States has resulted from lackluster

demand growth in Germany and an undervalued real effective exchange rate. The

considerable moderation in Germany’s growth in 2018 and the contraction in

Germany’s GDP in the second quarter of 2019 underscores the urgent need for

Germany to cut elevated labor and value-added taxes, restore stronger purchasing

power to German households, and undertake reforms to unleash robust domestic

investment and consumption. This would help underpin domestically driven growth

and reduce large external imbalances. The European Central Bank (ECB) has not

intervened unilaterally in foreign currency markets since 2001.4 

• Italy recorded a current account surplus of 2.8 percent of GDP in over the four quarters

through June 2019, while its goods trade surplus with the United States rose to $33

billion. Italy’s competitiveness continues to suffer from stagnant productivity and

 4 For the purposes of Section 701 of the 2015 Act, policies of the ECB, which holds responsibility for monetary

policy for the euro area, will be assessed as the monetary authority of individual euro area countries. 
7

rising labor costs. The country needs to undertake fundamental structural reforms to

raise long-term growth — consistent with reducing high unemployment and public

debt — and safeguard fiscal and external sustainability. The ECB has not intervened

unilaterally in foreign currency markets since 2001.

 

• Ireland’s bilateral trade surplus with the United States has expanded significantly in

recent years, reaching a record high of $50 billion over the four quarters through June

2019. This is countered in part by a sizable U.S. surplus in services trade with Ireland. 

Ireland’s current account balance, meanwhile, has been significantly impacted by the

growing presence of foreign multinational enterprises (MNEs), which contribute both

to an extremely large goods trade surplus and a substantial income deficit, as well as

notable volatility in the overall balance. After running a sizable current account surplus

in 2018, large income outflows in the first half of 2019 led the current account to shift

into deficit by 0.8 percent of GDP over the four quarters through June 2019. The

European Central Bank (ECB) has not intervened unilaterally in foreign currency

markets since 2001. Given that Ireland now only meets one of the three criteria from

the 2015 Act, Treasury would remove Ireland from the Monitoring List if this remains

the case at the time of its next Report. 

• Switzerland’s bilateral goods trade surplus with the United States has been trending

upward, and reached $21.8 billion over the four quarters through June 2019. 

Switzerland continues to have a very large current account surplus, which stood at

10.7 percent of GDP over the four quarters through June 2019. To help narrow its large

and persistent trade and current account surpluses, Switzerland should adjust

macroeconomic policies—in particular, using its ample fiscal space to more forcefully

support domestic economic activity and reduce reliance on monetary policy as it

approaches its limits. Switzerland’s foreign exchange purchases declined in both scale

and persistence from mid-2017 through mid-2019, and Treasury estimates that net

purchases of foreign exchange over the four quarters through June 2019 totaled

0.5 percent of GDP. Since mid-2019, Switzerland’s foreign exchange purchases have

increased markedly as the Swiss franc has appreciated against both the dollar and the

euro. Treasury continues to encourage the Swiss authorities to publish all intervention

data on a higher frequency basis. 

• Singapore runs one of the largest current account surpluses in the world as a share of

GDP, totaling 17.9 percent of GDP over the four quarters through June 2019. 

Notwithstanding this large external surplus with the rest of the world, Singapore has

consistently run a bilateral goods trade deficit with the United States, which stood at

$4.4 billion over the four quarters through June 2019. Singapore’s monetary policy is

uncommon, since it uses the exchange rate as its primary monetary policy tool. To meet

price stability objectives, the authorities use foreign exchange intervention frequently

to help guide the exchange rate and keep it within a target band. Treasury estimates

that over the twelve months ending June 2019, Singapore made net foreign exchange

purchases of at least $32 billion, equivalent to 9.0 percent of GDP. Treasury welcomes

the Singaporean authorities’ decision to begin publicly disclosing intervention data in

2020. While certain structural factors contribute to Singapore’s large current account
8

surplus, Singapore should undertake reforms that will lower its high saving rate and

boost low domestic consumption, while striving to ensure that its real exchange rate is

in line with economic fundamentals, in order to help narrow its large and persistent

external surpluses.

• Malaysia has maintained a significant bilateral goods trade surplus with the United

States since 2015, registering $26 billion over the four quarters through June 2019. 

After several consecutive years where the current account narrowed, Malaysia’s

current account has increased, rising to 3.0 percent of GDP over the four quarters

through June 2019. Malaysia’s central bank has over the last few years intervened in

both directions in foreign exchange markets. Treasury estimates that over the four

quarters through June 2019, the central bank made net sales of foreign exchange

equivalent to 0.3 percent of GDP in support of the ringgit in the midst of depreciation

pressures. Malaysia’s broad external rebalancing in recent years is welcome, and

Malaysia can further advance external rebalancing through targeted policies that

encourage high-quality and transparent investment and ensure sufficient social

spending, which can help minimize precautionary saving. Treasury also urges

Malaysian authorities to increase the transparency of foreign exchange intervention.

• Vietnam’s goods trade surplus with the United States continues to rise significantly,

with the surplus reaching $47 billion over the four quarters through June 2019. Over

this same period, Vietnam’s current account balance steadily narrowed, to 1.7 percent

of GDP, as rising outbound income payments have increasingly offset the still-large

goods trade surplus. Vietnam intervenes in foreign exchange markets frequently, and

in both directions, to maintain a close link to the dollar. The Vietnamese authorities

have credibly conveyed to Treasury that net purchases of foreign exchange were 0.8

percent of GDP over the four quarters through June 2019.5 These purchases came in a

context in which reserves remained below standard adequacy metrics and there was a

reasonable rationale for rebuilding reserves. Further, while purchases of foreign

exchange outweighed sales over the course of these four quarters, the central bank

intervened in both directions, with foreign exchange sales used to resist downward

pressure on the Vietnamese dong in the second half of 2018. As Vietnam strengthens

its monetary policy framework, and reserves reach adequate levels, Vietnam should

reduce its intervention and allow for movements in the exchange rate that reflect

economic fundamentals, including gradual appreciation of the real effective exchange

rate. Vietnam should also increase the transparency of foreign exchange intervention

and reserve holdings.

Treasury continues to track carefully the foreign exchange and macroeconomic policies of

U.S. trading partners under the requirements of both the 1988 and 2015 Acts, including

several that are not on the Monitoring List but are close to triggering key thresholds (e.g.,

Taiwan, Thailand). For example, Taiwan is the only major economy in Asia that does not

 5 Forward intervention is included on a trade date basis.
9 

publish data on the full details of its international reserves consistent with IMF standards.6 

Treasury continues to stress the importance of all economies publishing data related to

external balances, foreign exchange reserves, and intervention in a timely and transparent

fashion. 

 

6 We have been concerned by recent analytical work published by the Council of Foreign Relations suggesting

that Taiwan may have engaged in substantial undisclosed foreign exchange intervention in the swap market. 

Brad Setser and S.T.W. estimate that Taiwan has conducted undisclosed foreign exchange intervention in the

swap market totaling approximately $130 billion, and perhaps as much as $200 billion. 

https://www.cfr.org/blog/shadow-fx-intervention-taiwan-solving-100-billion-dollar-enigma-part-1
10

Section 1: Global Economic and External Developments

This Report covers economic, trade, and exchange rate developments for the first six

months of 2019 and, where data are available, developments through the end of 2019. This

Report covers developments in the 20 largest trading partners of the United States, whose

bilateral goods trade with the United States exceeded $40 billion over the four quarters

through June 2019. These economies’ total goods trade with the United States amounted to

more than $3.4 trillion over the four quarters through June 2019, more than 80 percent of

all U.S. goods trade during that period. For some parts of the analysis, especially those

parts having to do with Section 701 of the 2015 Act, data over the four quarters through

the second quarter of 2019 are considered. 

U.S. Economic Trends

In 2019, the United States entered the longest economic expansion on record: by the end of

the year, the economy had grown for 126 consecutive months. In the first three quarters of

2019, real GDP expanded 2.4 percent at an annual rate, near the solid 2.5 percent growth

over the four quarters of 2018. Economic growth was driven by stronger consumption

spending, stabilization in housing markets, and more robust government spending. In

contrast, business fixed investment was constrained in 2019 by slowing global growth,

concerns about global supply chains, and domestic and international policy uncertainty. 

Nonetheless, labor markets maintained strength in 2019: as of November, the

unemployment rate fell to a 49-year low, labor force participation rates held at or close to

multi-year highs, year-over-year productivity growth rates improved, and nominal and real

wage gains were consistently robust. Headline inflation, as measured by the Consumer

Price Index, held below 2.0 percent throughout most of 2019 after peaking at 2.9 percent in

mid-2018; core inflation, which excludes food and energy, remained stable during the

latter half of 2018 and early 2019 and picked up only modestly toward the end of the year. 

Interest rates, including mortgage rates, started to decline in November 2018, and despite

late-year retracement, remained well below the levels of fall 2018, which helped improve

affordability in the housing sector. In early December 2019, a consensus of private

forecasters predicted that for 2019, real GDP would expand at a rate of 2.2 percent, fourth

quarter over fourth quarter.

Solid U.S. Growth

Real GDP expanded at an annualized rate of 2.4 percent over the first three quarters of

2019, close to the 2.5 percent pace of growth over the four quarters of 2018. Private final

domestic demand growth remained at a solid pace of 2.4 percent over the first three

quarters of 2019, after growing by 2.8 percent over the four quarters of 2018. Consumer

spending growth accelerated to 2.9 percent at an annualized rate over the first three

quarters of 2019, after growing by 2.6 percent over the four quarters of 2018. Business

fixed investment rose by 5.9 percent over the four quarters of 2018, but slowed sharply to

an annualized rate of 0.3 percent over the first three quarters of 2019, as rates of

investment in structures and equipment dropped off in response to falling oil prices and

slowing global growth. After falling by 4.4 percent over the four quarters of 2018,
11

residential investment stabilized in 2019, growing by 0.2 percent at an annualized rate

over the first three quarters of this year. Government spending growth more than doubled

to an annualized rate of 3.1 percent over the first three quarters of 2019, compared with a

1.5 percent pace over the four quarters of 2018. Although net exports subtracted an

average 0.4 percentage point from growth during 2018, this component made an

essentially flat contribution to growth, on average, during the first three quarters of 2019. 

Inventory accumulation added an average 0.3 percentage point to growth during 2018 but

posed a drag on growth, averaging 0.1 percentage point during the first three quarters of

this year.

Fundamentals Remain Strong

Labor markets maintained strength in 2019. Nonfarm payroll employment continued to

expand, with growth averaging 180,000 jobs per month during 2019 through November,

after averaging 223,000 per month in 2018. The pace of job growth this year was well

above estimates of the rate of long-run employment growth (90,000 to 130,000) needed to

maintain a stable unemployment rate. Measures of unemployment generally declined over

the course of 2018 and continued to trend lower through November 2019. After averaging

around 3.9 percent during 2018, the average unemployment rate declined to 3.7 percent in

the first 11 months of 2019; as of November, the rate was 3.5 percent, matching

September’s 49-year low. The broadest measure of unemployment, which includes those

marginally attached to the labor force and those working part-time for economic reasons,

declined to 6.9 percent as of November, matching September’s reading as the lowest level

since December 2000. Meanwhile, other measures of labor market conditions continued to

improve: the labor force participation rate rose to 63.2 percent as of November 2019, just

below the six-year high of 63.3 percent reached the previous month. Prime-age (ages 25-

54) labor force participation rose to 82.8 percent in October 2019, a ten-year high, where it

remained in November 2019.

The pace of compensation growth began to pick up during 2018 and accelerated noticeably

in 2019. Nominal average hourly earnings for production and nonsupervisory workers

rose 3.5 percent over the year through December 2018. By October 2019, year-over-year

earnings growth accelerated to 3.8 percent, the fastest yearly pace since December 2008,

before ticking down to a 3.7 percent pace over the year through November 2019. 

Significantly, earnings for production and nonsupervisory workers have grown at or above

3 percent for sixteen consecutive months, and for the past five consecutive months, this

measure of wage growth has increased by at least 3.5 percent. Meanwhile, the slower pace

of inflation in 2019 translated into consistently strong real wage growth, with the pace

nearing a 4-year high. In real terms, average hourly earnings rose 1.7 percent over the year

through November 2019, up from the 1.6 percent increase over the 12 months of 2018. 

Wages and salaries for private industry workers, as measured by the Employment Cost

Index, advanced 3.0 percent over the four quarters ending in September 2019, about in line

with the 3.1 percent pace over the four quarters ending in December 2018. Strong wage

gains were helped by the considerable improvement in labor productivity growth: after

rising 1.0 percent over the four quarters ending December 2018, productivity rose

1.5 percent over the four quarters ending in September 2019.
12

Consumer sentiment, as measured by the Reuters/Michigan index, stood at 99.3 in

December 2019, very close to the 14-year high of 101.4 reached in March 2018 and a full

point higher than in December 2018. Consumer confidence, as measured by the

Conference Board index, reached an 18-year high of 137.9 in October 2018 before declining

to 126.6 in December 2018. The index was little changed over the year at 126.5 by

December 2019.

Measures of business activity rose to multi-year highs during the latter half of 2018 but

trended lower in 2019. The Institute for Supply Management’s manufacturing index ended

2018 at 54.3 – just 6.5 points below the 14-year high reached in August 2018. Twelve

months later, however, the manufacturing index slipped below the growth threshold for

the first time since 2016, constrained by slowing global growth as well as other domestic

and international factors. The manufacturing index declined to 47.2 in December 2019, a

10-year low and the fifth consecutive month that signaled sector contraction. Nonmanufacturing business growth also slowed in 2019 but continued to signal business

activity expansion. After reaching a 13-year high of 60.8 in September 2018, the ISM’s nonmanufacturing index declined to 58.0 by the end of the year. As of December 2019, nonmanufacturing index was 55.0.

By historical standards, headline inflation in 2019 has been moderate, on balance, after

trending lower from mid-2018 through early this year. Over the 12 months through July

2018, the consumer price index (CPI) for all items jumped 2.9 percent. The 12-month

growth rate declined to 1.9 percent by December 2018 and decreased further to 1.5

percent over the 12 months through February 2019. Since then, headline inflation has

slowly picked up, reaching 2.1 percent over the year through November 2019. The

headline personal consumer expenditure (PCE) price index, the basis for the Federal

Reserve’s 2 percent inflation target, was up 1.4 percent over the four quarters through

2019 Q3, slowing from the 1.9 percent pace over the four quarters through 2018 Q4, and

nearly a full percentage point below the 2.3 percent pace over the four quarters through

2018 Q2. The four-quarter pace of growth through 2019 Q3 marked the slowest yearly

PCE price increase since 2016 Q3. Meanwhile, core CPI inflation held between a relatively

narrow range: after rising 2.4 percent over the year through July 2018, 12-month growth in

the core CPI fluctuated between 2.0 percent and 2.2 percent during the final six months of

2018 and the first half of 2019. Over the year through November 2019, the core CPI was up

2.3 percent. Year-over-year growth in the core PCE price index also has had a relatively

narrow range in 2019. For the past 11 months, core PCE inflation has ranged between

1.5 percent and 1.7 percent, and index was up 1.6 percent over the year ending in

November.

Fiscal Policy and Public Finances

The Federal Government’s deficit and debt trended up over the past few years. As the U.S.

economy recovered from the 2008-09 recession and implemented spending cuts, the

deficit gradually decreased to $442.0 billion (2.4 percent of GDP) in FY 2015. Since then,

the deficit has risen. At the end of the 2019 fiscal year, the deficit rose to 4.6 percent of
13

GDP ($984 billion), from 3.8 percent ($779 billion) in FY 2018. Excluding net interest

payments, the deficit was 2.9 percent of GDP in FY 2019, up 0.7 percentage point from

FY 2018. The increase in the deficit was driven by faster growth of outlays – largely due to

higher mandatory spending from a growing number of retirees – relative to receipts. Net

outlays for FY 2019 were 21.0 percent of GDP, up from 20.2 percent of GDP in FY 2018,

while federal receipts were 16.3 percent of GDP in FY 2019 (down slightly from

16.4 percent in FY 2018). Federal debt held by the public, or federal debt less that held in

government accounts, rose 6.6 percent to $16.81 trillion by the end of FY 2019. Publicallyheld debt as a share of GDP increased by 1.7 percentage points to 79.2 percent of GDP.

So far in FY 2020 (October 2019 to November 2019), the U.S. government has run a deficit

of $343 billion (up $37.9 billion from the first two months of FY 2019) while the primary

deficit (excluding interest payments) was $278 billion (up $38.5 billion). The federal

government has spent $814 billion so far in FY 2020 while collecting $471 billion in

revenue. In the Mid-Session Review (MSR, released in July), the Administration projected

the federal deficit for FY 2020 would total $1.05 trillion (4.7 percent of GDP) while the

primary deficit would be $624 billion (2.8 percent of GDP). The MSR forecast the

government would spend $4.68 trillion (21.0 percent of GDP), of which net interest

payments would account for $421 billion (1.9 percent of GDP). Receipts were projected to

be $3.63 trillion (16.3 percent of GDP). The Administration projected federal debt held by

the public would be $17.93 trillion (80.4 percent of GDP) by the end of FY 2020.

U.S. Current Account and Trade Balances

After narrowing in the postcrisis era to just below 2

percent of GDP in the second

half of 2013, the headline U.S.

current account deficit has

been quite stable since 2015 in

the ballpark of 2–21⁄2 percent

of GDP. The U.S. current

account was in deficit by 2.5

percent of GDP in first half of

2019, similar to the second half

of 2018 and 0.3 percent of GDP

wider than the first half of 2018. The current account deficit was nearly flat in nominal

terms in the first half of 2019 compared to the second half of 2018, with a slight narrowing

of the goods trade deficit largely offset by small declines in the surpluses in services and

income. 

Similar to the overall U.S. current account deficit, the U.S. goods trade deficit has been

relatively stable in recent years, in the range of 4–41⁄2 percent of GDP. But significant shifts

have occurred within the goods balance. The U.S. petroleum deficit has fallen as domestic

production has expanded, and net petroleum imports narrowed to 0.1 percent of GDP in

the first half of 2019. The non-oil goods deficit, by comparison, has been widening, with

-5

-4

-3

-2

-1

0

1

2

3

H1 2012H2 2012

H1 2013H2 2013H1 2014

H2 2014H1 2015

H2 2015H1 2016H2 2016H1 2017H2 2017H1 2018H2 2018H1 2019

Percent of GDP

U.S. Current Account Balance

Income Services Goods Current Account Balance

Sources: Bureau of Economic Analysis, Haver
14

2018 marking the first year since

2006 it stood above 4 percent of

GDP, where it remained over the

first half of 2019. This widening

has primarily reflected strong

import growth and relatively

stagnant export growth. The

dollar’s broad strength over this

period has likely contributed to

these developments in U.S. trade

patterns.

At the end of the third quarter of 2019, the U.S. net international investment position stood

at -$10.9 trillion (-50.8 percent of GDP), a deterioration of $1.4 trillion compared to end2018. The value of U.S.-owned foreign assets was $28.3 trillion, while the value of foreignowned U.S. assets stood at $39.2 trillion. Deterioration in the net position in the first three

quarters of 2019 was due in part to the relative outperformance of U.S. stock markets

compared to foreign equity markets.

International Economic Trends

Global growth momentum pulled back in 2018, and has continued to slow over 2019. Fixed

investment spending across the global economy has been subdued, with both businesses

and households holding back on purchases of durable goods (e.g., machinery and

equipment, automobiles). Business sentiment and surveys of purchasing managers point

to a weak outlook for manufacturing and trade, as pessimistic views on new orders suggest

skepticism about the strength of global demand. A wide range of factors have been

weighing on global activity. These include political uncertainty in many European and

Latin American countries, financial turbulence in some large emerging markets, China’s

efforts to address corporate debt vulnerabilities, and ongoing geopolitical tensions. The

IMF forecast global growth at 3.0 percent in 2019, its slowest pace since the global financial

crisis, with growth ticking up to 3.4 percent in 2020. 

With heightened concerns about the global growth deceleration across major economies,

central banks have shifted to providing more accommodation. It is critical, however, that

fiscal and structural policies work in tandem with monetary support to bolster near-term

activity and medium-term growth prospects. Many countries, particularly those with

current account surpluses including Germany, the Netherlands, and Korea, have sufficient

fiscal space for substantial pro-growth stimulus. This would help reduce the pressure on

monetary policy, which in some cases is facing constraints to additional accommodation. 

Structural reforms continue to be needed to lay the foundation for stronger medium-term

growth. While priorities vary across economies, needed measures include tax reforms to

facilitate stronger investment and encourage labor force participation; regulatory reforms

to boost private sector-led growth; and dismantling trade barriers to create a level playing

field.

-7

-6

-5

-4

-3

-2

-1

0

2005 2007 2009 2011 2013 2015 2017 2019

Percent of GDP

U.S. Goods Balance

Non-Oil Balance

Oil Balance

Source: Bureau of Economic Analysis
15

Foreign Exchange Markets7

After strengthening notably over 2018, the U.S. dollar was down slightly on net in 2019. As

of end-December, the nominal trade-weighted dollar stood 0.7 percent lower year-to-date. 

Dollar appreciation in 2019 was concentrated in a period from late July to early September

when the nominal dollar rose 3 percent. At the time, a deterioration in global risk appetite

generated a flight to safety, pushing the dollar higher against most currencies other than

the Japanese yen and Swiss franc. With a general decline in safe haven pressures, however,

the dollar has depreciated by 3.0 percent since end-August. Across other major currencies,

the pound was 4.0 percent stronger against the dollar in 2019, driven by recent

developments related to Brexit, while the euro continues to be weighed down by concerns

about slowing growth in Europe, particularly in Germany. The Canadian dollar, meanwhile,

despite depreciating against dollar since mid-year, was up strongly against the dollar over

the first half of 2019, driven by expectations of monetary policy divergence. Across

emerging market currencies, the dollar gained nearly 4 percent against the Korean won

over 2019, as slowing economic growth and expectations of monetary easing weighed on

the won. 

Continued dollar strength is concerning given that the IMF continues to judge that the

dollar is overvalued on a real effective basis (see chart on page 18). After appreciating 4.5

percent in real effective terms in 2018, the real dollar was slightly below its end-2018 level

 7 Unless otherwise noted, this Report quotes exchange rate movements using end-of-period data. Bilateral

movements against the dollar and the nominal effective dollar index are calculated using daily frequency or

end-of-period monthly data from the Federal Reserve Board. Movements in the real effective exchange rate

for the dollar are calculated using monthly frequency data from the Federal Reserve Board, and the real

effective exchange rate for all other currencies in this Report are calculated using monthly frequency data

from the Bank for International Settlements or JP Morgan if BIS data are unavailable.

-2

0

2

4

6

8

10

Vietnam

China

India

Malaysia

Thailand

Taiwan

Brazil

Mexico

2018

H1 2019

-2

0

2

4

6

8

10

Ireland

United States

Japan

Canada

Netherlands

Korea

Switzerland

France

Belgium

UK

Singapore

Germany

Italy

Percent change (annualized rate)

Real GDP Growth

Note: Based offsemester average of Q/Q SAAR growth rates. China, India, and Vietnam basedoff Y/Y NSA data for the final 

quarter of each period.

Sources: National Authorities, Haver

Advanced Economies Emerging Market Economies
16

as of end-2019, as concerns

regarding global uncertainty

eased somewhat in recent

months. However, the real dollar

remains elevated at about 8

percent above its 20-year average. 

Sustained dollar strength would

likely exacerbate persistent trade

and current account imbalances. 

It is also concerning that the real

effective exchange rates of several

surplus economies that the IMF

assess to be undervalued have

this year either further

depreciated (notably Korea, but

also Germany and Malaysia), or

have not moved in the direction

that would correct imbalances

(Singapore and the Netherlands). 

Treasury judges that foreign

exchange markets have continued

to function smoothly,

including as China devalued the

RMB to gain an unfair competitive

advantage in international trade

and as the Federal Reserve

lowered its interest rate corridor

in July and September. The dollar

continues to be the world’s

principal currency in

international foreign exchange

markets, reflecting its dominant

global position both in terms of market turnover (being bought or sold in 88 percent of all

currency trades) and trade settlement.8

 8 Currency market turnover according to the 2019 Bank for International Settlement Triennial Central Bank

Survey of Foreign Exchange and OTC Derivatives.
17

Global Imbalances

Global current account imbalances have been broadly stable the last three years, averaging

around 1.8 percent of global GDP.9 This remains high from a historical perspective,

standing nearly 0.4 percentage points (or roughly $300 billion annually) higher than the

1980-1999 average. While some very large surpluses have come down, many remain

excessively high. Among major U.S. trading partners, the very large surpluses of Germany,

Netherlands, Singapore, Switzerland, Taiwan, and Thailand have each remained significant

as a share of GDP, with the combined surpluses of these economies totaling $609 billion

over the four quarters through June 2019 (roughly equivalent to 0.7 percent of global GDP). 

Japan’s surplus is smaller as a share of GDP at 3.4 percent, but even by this metric remains

large and in dollar terms is comparatively high at $168 billion. China’s surplus, while

relatively low as a share of GDP, also remains high in dollar terms at $166 billion in the four

quarters through June 2019. 

In many cases, these imbalances reflect policy distortions including inappropriately

calibrated fiscal policies. While excessively loose policy can result in vulnerabilities

associated with debt, excessively tight policy holds back growth. It is critical, in light of

 9 Specifically, global current account surpluses have totaled 1.8 percent of global GDP in recent years. 

Correspondingly, global current account deficits, along with the statistical discrepancy (which has

consistently been negative for more than a decade), also equal 1.8 percent of global GDP.

-20

-10

0

10

20

India

United States

U.K.

Canada

France

Mexico

Brazil

Italy

Japan

Thailand

China

Switzerland

Vietnam

Ireland

Malaysia

Euro Area

Singapore

Korea

Netherlands

Germany

Percent

2018 REER Gap Assessment (mid)1 2019 REER ∆2

CA Deficit Economies CA Surplus Economies

IMF Estimates of Exchange Rate Valuation

Undervalued Overvalued

Sources: IMF 2019 External Sector Report, IMF 2019 Article IV Consultation Staff Reports for Vietnam and Ireland, BIS REER 

Indices, JP Morgan, and FRB.

1/The IMF's estimate of real effective exchange rate (REER) gap (expressed as a range) compares the country's average REER in

2018 to the level consistent with the country's medium-term economic fundamentals and desired policies. The midpoint of the 

gap range is depicted above.

2/Change through November 2019 versus 2018 average.

Note: The IMF does not provide an estimate of Taiwan's REER gap.
18

slowing global growth momentum that adjustments to lower imbalances are not driven by

demand compression in deficit economies, the channel which has dominated in the past,

but rather through a symmetric rebalancing process that sustains global growth

momentum.

Capital Flows

Following the sustained pullback of nonresident portfolio flows from emerging markets in

2018, global liquidity conditions relaxed in early 2019 as major central banks sought to

address subdued growth outlooks and in turn adopted more accommodative policy

stances. This easing resulted in a resurgence in inflows to emerging market economies, but

has been offset in recent months by deteriorating risk sentiment as the global growth

outlook has been marked down. 

Net portfolio and other flows to

emerging markets (ex-China)

totaled -$112 billion over the

first half of 2019 (based on data

available as of mid-December),

narrowing by more than $70

billion relative to the second half

of 2018. Foreign direct

investment to emerging markets

has remained resilient in 2019

and was more than sufficient to

offset portfolio and other

outflows in the first half of the

-3

-2

-1

0

1

2

3

19801982198419861988199019921994199619982000200220042006200820102012201420162018

Percent of Global GDP

Global Current Account Imbalances

China Germany Japan

Other Surplus United States Other Deficit

Statistical Discrepancy

Sources: IMFWEO, Haver

-800

-600

-400

-200

0

200

400

600

20052006200720082009201020112012201320142015201620172018

2019 YTD

USD Billions

Net Capital Flows to Emerging Markets

EM excluding China China

Note: Financial account (excluding reserves) adjusted for errors and ommissions. 

2019 reflects data through the end-September where available.

Source: National Authorities, U.S.Department of the Treasury Staff Calculations
19

year. Higher frequency data (from sources beyond quarterly balance of payments data)

suggest that emerging market risk appetite was relatively muted in the third quarter

despite central banks taking steps to support growth. Against this backdrop, portfolio debt

inflows have slowed considerably while net equity outflows have resumed since end-June. 

In China, after slowing in mid-2018, resident capital outflows gained momentum over late

2018 and early 2019, though resident outflows remained below their level a year prior. 

Recent resident outflows have been driven by ongoing softening of economic growth and

RMB weakness. Foreign portfolio inflows remain relatively strong, aided by the inclusion

of China in some key emerging market bond and equity indices, and by increased issuance

of dollar-denominated bonds by Chinese firms. Foreign direct investment inflows remain

positive, though they have generally trended lower since late 2014. 

Foreign Exchange Reserves

After remaining

broadly stable in

2018, global foreign

currency reserves

increased modestly

in the first half of

2019, up $300 billion

to $11.7 trillion. 

With the dollar

relatively stable over

the period, net

foreign exchange

purchases

contributed to the

rise in reserve levels. 

India has been public

about the need to

bolster foreign

currency reserves

and the Reserve

Bank of India

purchased close to

$10 billion over the

first six months of

2019. Other

economies are not as

transparent about

their foreign

exchange policies

and practices, but

the dollar value of

FX Reserves 

(USD Bns)

1Y Δ FX 

Reserves 

(USD Bns)

FX Reserves 

(% of GDP)

FX Reserves 

(% of ST debt)

China 3,119.2 7.1 23% 268%

Japan 1,256.4 58.4 25% 42%

Switzerland 778.3 25.3 111% 79%

Taiwan 471.9 9.8 79% 268%

India 400.7 19.9 15% 365%

Korea 392.3 2.0 23% 280%

Brazil 378.1 7.8 21% 502%

Singapore 271.5 -14.3 75% 24%

Thailand 206.6 8.2 40% 388%

Mexico 174.1 7.1 14% 253%

UK 125.6 1.0 4% 2%

Malaysia 98.8 -2.3 28% 107%

Canada 74.9 3.5 4% 11%

Vietnam 63.9 6.5 25% 256%

France 48.8 0.5 2% 2%

Italy 41.2 3.0 2% 4%

Germany 36.8 0.1 1% 2%

Belgium 10.4 0.5 2% 2%

Netherlands 4.2 0.0 0% 0%

Ireland 3.1 1.0 1% 0%

World 11,732.3 254.5 n.a. n.a.

Foreign exchange reserves as of Jun 2019.

GDP caluclated as sum of rolling 4Q GDP through Q2-2019.

Table 1: Foreign Exchange Reserves

Short-term debt consists of gross external debt with original maturity of one year 

or less, as of the end of Q2-2019.

Sources: National Authorities, World Bank, IMF, BIS.
20

reserves rose across several major trading partners including Switzerland, Taiwan, and

China.

The economies covered in this Report continue to maintain ample — or more than ample

— foreign currency reserves compared to standard adequacy benchmarks. Reserves in

most economies are more than sufficient to cover short-term external liabilities and

anticipated import costs. Excessive reserve accumulation imposes costs both on the local

economy (in terms of sterilization costs and foregone domestic investment) and the world. 

Economies should focus on enhancing resilience through stronger policy frameworks, as

recommended by the IMF, rather than through increasing reserves to excessive levels.10

Economic Developments in Selected Major Trading Partners

China

China continues to run a persistently large trade surplus with the United States, dwarfing

all other trade imbalances between the United States and its other major trading partners,

with the bilateral goods trade surplus totaling $401 billion over the four quarters through

June 2019. U.S. goods imports from China have declined over the four quarters through

June 2019 (to $509 billion, down $17 billion from the same period 12 months prior), the

first reversal of export growth to the United States since the same period from 2015-16. 

U.S. goods exports to China have declined even more (to $108 billion, down $27 billion

from the same period 12 months prior). This decrease in U.S. goods exports to China is

primarily on account of lower purchases of U.S. soybeans, liquefied natural gas, and motor

vehicles, likely due to the combination of slowing domestic demand in China as well as

unjustified retaliatory tariffs and non-tariff measures that were previously implemented on

U.S. imports. The U.S. services trade surplus with China has slightly declined to $37 billion

over the four quarters through June 2019, after totaling $40 billion over the same period in

2018.

China’s current account surplus

declined to 0.4 percent of GDP

($49 billion) in 2018, but has

widened again in the first half of

2019 to 1.2 percent of GDP ($88

billion over the first two

quarters). As growth in China

has slowed over the past year,

both goods and services imports

— particularly outbound tourism

— have decreased over the first

half of 2019. Meanwhile, goods

exports have remained steady,

which has led to a widening goods surplus amidst a narrowing services deficit. 

 10 International Monetary Fund, 2011, “Assessing Reserve Adequacy,” IMF Policy Paper, February

(Washington: International Monetary Fund).

-5

0

5

10

20082009201020112012201320142015201620172018

2019H1

Percent of GDP

China: Current Account Balance

Income Services Goods Current Account Balance

Sources: SAFE,Haver
21

The depreciation of the RMB

against the U.S. dollar in 2019

may help support China’s goods

exports, further exacerbating the

bilateral trade imbalance. Since

the beginning of May, the RMB

has depreciated against the U.S.

dollar by 4.3 percent and by

4.0 percent against the People’s

Bank of China (PBOC) CFETS

nominal basket.11 Over the

summer, China took concrete

steps to devalue the RMB. On

August 5, the RMB depreciated below the level of 7.0 per U.S. dollar for the first time since

the global financial crisis. After depreciating as far as 7.18 RMB per dollar in early

September, the RMB subsequently appreciated in October and currently is trading at about

6.93 per dollar.

The PBOC manages the RMB through a range of tools, including through the setting of the

central parity rate (the “daily fix”) that serves as the midpoint of the daily trading band. In

May 2017, the authorities introduced a “counter-cyclical adjustment factor” that allowed

for more discretion in the setting of the daily fix. Subsequently, the daily fix has played an

increasingly important role in the authorities’ management of the RMB. 

In addition to the daily fix, the PBOC also manages the RMB through other tools, including

by direct intervention in foreign exchange markets, influencing the interest rates of RMBdenominated assets that trade offshore, changing the reserve requirement for foreign

exchange derivatives trading, and directing the timing and volume of forward swap sales

and purchases by China’s state-owned banks. The Chinese authorities have acknowledged

that they have ample control over the exchange rate.

China does not publish its

foreign exchange market

interventions leading Treasury

staff to estimate China’s direct

intervention in the foreign

exchange market. Official foreign

exchange reserves have

remained roughly unchanged at

$3.1 trillion as of December

2019, suggesting that the PBOC

has refrained from intervention

even as the RMB has been

depreciating. 

 11 The China Foreign Exchange Trade System (CFETS) RMB index is a trade-weighted basket of 24 currencies

published by the People’s Bank of China.

85

90

95

100

105

110

Dec-14 Dec-15 Dec-16 Dec-17 Dec-18

Indexed December 2014 = 100

China: Exchange Rates

CFETS Bilateral vs. USD

Sources: CFETS, FRB

-200

-150

-100

-50

0

50

Jan-15

Apr-15

Jul-15

Oct-15

Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Billion U.S. Dollars

China: Estimated FX Intervention

Preferred Methodology* Bank FX Settlement

Sources: PBOC, SAFE, U.S. Treasury Estimates

*Based on change in FX-denominated assets on PBOC balance sheet
22

The United States continues to urge China to avoid exchange rate measures that promote

unfair competitive advantage in global trade. China should also increase public

understanding of the relationship between the PBOC and the foreign exchange activities of

the state-owned banks, including in the offshore RMB market.

RMB depreciation and slowing economic activity since the second half of 2018 have

reignited capital outflow pressures, with outflows significantly higher in the first half of

2019 compared to the same period last year. Treasury estimates that, in the first half of

this year, net outflows (excluding flows accounted for by trade and direct investment)

totaled $110 billion, compared to $13 billion in outflows during the first half of 2018. The

rise in outflows this year still leaves them below their 2017 level, when outflows totaled

$164 billion over the first half of the year. Overall pressure on the financial account this

year has been curbed by relatively tight controls on outbound flows and further mitigated

by steady foreign direct investment and portfolio inflows into Chinese financial assets. 

Separately, net errors and omissions in the balance of payments data have been negative

for 21 consecutive quarters and stood at -$242 billion over the four quarters through June

2019, widening by -$68 billion compared to the same period a year earlier. This suggests

an uptick in undocumented capital outflows that are not captured within the conventional

components of the financial account.12 Research suggests that China’s current account

surplus could also be understated — particularly due to an underreporting of services

exports to foreign visitors to China — due to poor data quality.13 We urge China to

undertake efforts to address deficiencies in its data reporting, consistent with the

recommendations of the IMF.

While China’s deleveraging campaign was a much needed response to growing financial

sector risks, the slowdown in credit adversely impacted private sector financing and local

government infrastructure spending. Officially reported real GDP growth fell to 6.2 percent

in the second quarter of 2019 compared to 6.4 percent in the first quarter on a year-overyear basis. Consumption — which is mostly private but also includes government

consumption — remains the largest contributor to overall growth, but its share has

declined to 55 percent in the second quarter of 2019 compared to 80 percent in the second

quarter in 2018. Meanwhile, net exports are once again positively contributing to growth

in 2019, after having a dragging effect in 2018. Investment activity has been trending

downward since early 2018, but saw an increase in the second quarter of 2019, likely due

to targeted fiscal and monetary stimulus measures that the authorities implemented

starting in late 2018 to respond to slowing growth. To strengthen long-term growth

prospects, China must take decisive steps to further rebalance its economy and allow for

greater market openness. Structural reforms that reduce state intervention, strengthen

 12 China’s reporting of its net errors and omissions data has historically lagged behind reporting of other

balance of payments data, raising additional concerns about data quality and disguised capital outflows. 13 Anna Wong, “China’s Current Account: External Rebalancing or Capital Flight?” (2017). International

Finance Discussion Papers 1208. Board of Governors of the Federal Reserve System. Matthew Higgins,

Thomas Klitgaard, and Anna Wong, “Does a Data Quirk Inflate China’s Travel Services Deficit?,” Federal

Reserve Bank of New York Liberty Street Economics, August 7, 2019,

https://libertystreeteconomics.newyorkfed.org/2019/08/does-a-data-quirk-inflate-chinas-travel-servicesdeficit.html.
23

household consumption growth, and permit a greater role for market forces will help foster

a more level playing field for American firms and facilitate a more reciprocal bilateral trade

relationship.

Japan

Over the four quarters through

June 2019, Japan’s current

account surplus was 3.4 percent

of GDP (down from 4.1 percent

in the preceding four quarters). 

Japan’s current account surplus

continues to be driven primarily

by earnings on its substantial net

foreign assets: net foreign

income has exceeded 3 percent

of GDP while accounting for at

least four-fifths of the overall

current account surplus in every

year since 2013. Japan has the largest net international investment position in the G-7 —

63 percent of GDP in 2018 — and the IMF projects it will rise to 70 percent of GDP in the

medium term. Japan’s overall goods trade balance declined to a $3 billion deficit from July

2018 through June 2019, down from a $42 billion surplus in the four quarters a year prior,

while Japan’s services deficit narrowed from a $7 billion deficit to a $2 billion deficit over

the same period. 

Japan’s goods trade surplus with the United States over the four quarters through June

2019 was $69 billion, the same as a year earlier. The United States continues to have a

services trade surplus with Japan ($10 billion over the four quarters through June 2019)

resulting in Japan having a $59 billion overall bilateral trade surplus with the United States

over this period, unchanged from a year earlier. Treasury remains concerned by the

persistence of the large bilateral trade imbalance between the United States and Japan.

The yen appreciated 0.9 percent

against the dollar over 2019. On 

a real effective basis, the yen 

rose 1.9 percent over the first 11

months of 2019, but has 

remained weaker than average 

historical levels over the last six 

years. Japan publishes its foreign 

exchange interventions, and has 

not intervened in foreign 

exchange markets since 2011. 

Treasury’s firm expectation is 

that in large, freely-traded 

-3

0

3

6

20082009201020112012201320142015201620172018

2019H1

Percent of GDP

Japan: Current Account Balance

Income Services Goods Current Account Balance

Sources: Bank of Japan, Ministry of Finance, Cabinet Office 

60

80

100

120

140

60

80

100

120

140

Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19

Indexed to 20Y Avg = 100

Japan: Exchange Rates

REER NEER Bilateral vs. USD

Sources: FRB, Bank for International Settlements
24

exchange markets, intervention should be reserved only for very exceptional 

circumstances with appropriate prior consultations, in line with G-7 commitments, 

particularly in the face of appreciation pressures. 

Japan’s economy remains in its longest post-war expansion, although the pace of recovery

has been modest. Real GDP growth increased to 1.8 percent at an annualized rate in the

first half of 2019, up from 0.8 percent in 2018 on stronger than expected consumption and

public spending. The IMF October 2019 World Economic Outlook projected GDP growth of

0.9 percent in 2019 and 0.5 percent in 2020 reflecting the October 2019 consumption tax

increase and accompanying countermeasures. 

CPI inflation has moderated to 0.7 percent year-on-year in June 2019, after peaking at 1

percent year-on-year increases in September and October of 2018. The BOJ Policy Board

forecasts inflation will remain below its 2 percent target through fiscal year 2021, and at its

April 2019 meeting signaled that it would maintain its accommodative monetary stance at

least through Spring 2020. The BOJ adjusted its ongoing “Quantitative and Qualitative

Easing with Yield Curve Control” policy in July 2018 to allow for increased flexibility of its

ETF and REIT asset purchase program, reduce the size of account balances subject to

negative interest rates, and allow more movement of the 10-year bond yield around its

zero percent target. In August 2019, the BOJ signaled additional flexibility in movement

around the 10-year bond yield zero percent target.

 

Looking forward, the IMF projects annual growth of less than one percent in 2020-2024. In

this context, it remains important that the Japanese authorities pursue further structural

reforms to increase productivity and raise potential growth. Continued movement towards

trade openness and deregulation are necessary to cement productivity gains, especially in

the agriculture and service sectors, and to support small and medium enterprises. While

Japan has made commendable progress on labor reforms, further efforts are needed to

strengthen wage growth, expand labor participation, and address labor market duality, all

especially important in the face of Japan’s declining working-age population.

 

Korea

After peaking at more than 7

percent of GDP in 2015, Korea’s

current account surplus has

gradually declined, reaching 4.5

percent of GDP in 2018. This

trend has continued this year,

with the current account surplus

declining to 4.0 percent of GDP

through the four quarters ending

in June 2019. The decline was

due to a widening of Korea’s

services trade deficit, a decline in

the income balance, and a

-4

-2

0

2

4

6

8

10

20082009201020112012201320142015201620172018

2019H1

Percent of GDP

Korea: Current Account Balance

Income Services Goods Current Account Balance

Sources: Bank of Korea, Haver
25

decline in the overall goods trade surplus from a peak of 8.2 percent of GDP in 2015 to 5.7

percent of GDP over the four quarters through June 2019, in line with worsening terms of

trade. The IMF’s most recent assessment continued to describe Korea’s external position

as moderately stronger than justified by medium-term economic fundamentals. 

Korea’s goods trade surplus with the United States trended down from its 2015 peak of

$28 billion to $18 billion in 2018, before increasing to $20.3 billion over four quarters

through June 2019. The increase over the past six months was driven by increased Korean

exports to the United States, particularly of transportation equipment. The United States

continues to have a surplus in services trade with Korea, at $9.1 billion over the four

quarters through June 2019. 

Treasury estimates that on net

the authorities intervened to

support the won over the first

half of 2019, making net sales of

foreign exchange of $8 billion

(0.5 percent of GDP). The

authorities made net sales of

foreign exchange in five of the

first six months of 2019, during

which the won was depreciating

against the dollar. Treasury

supports Korea’s ongoing plans

to report foreign exchange

intervention in a more transparent and timely manner. Korea disclosed its foreign

exchange intervention over the first half of 2019 on September 30 and will transition to a

quarterly disclosure schedule in December.14 

Korea has well-developed

institutions and markets, and

should limit currency

intervention to only truly

exceptional circumstances of

disorderly market conditions. 

Korea continues to maintain

ample reserves at $392 billion as

of June 2019, equal to nearly 3

times gross short-term external

debt and 23 percent of GDP.

The IMF has considered the

Korean won to be undervalued every year since 2010, and in its most recent evaluation

considered the won to be undervalued by 1-7 percent. Over the year, the won depreciated

 14 Korea reported net sales of $3.8 billion over the first half of 2019. Treasury’s measure for intervention is

more frequent and broader in scope, covering activity in the spot, forward, and swap markets.

-10

-5

0

5

10

Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Billion U.S. Dollars

Korea: Estimated FX Intervention

Est. Spot Market Intervention Change in Net Forward Book

Sources:Bank of Korea, U.S. Treasury estimates

70

80

90

100

110

120

130

70

80

90

100

110

120

130

Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19

Indexed to 20Y Avg = 100

Korea: Exchange Rates

Bilateral vs. USD REER NEER

Sources: FRB, Bank for International Settlements
26

3.7 percent against the dollar, while depreciating 5.2 percent on a real effective basis in the

first 11 months of 2019. 

Korea’s external position has adjusted somewhat since the peak of the current account

surplus in 2015, yet there remains scope for policy reforms that would support a more

durable strengthening of domestic demand. Korea was strongly reliant on external

demand in the first few years after the global financial crisis, with net exports accounting

for more than one-third of cumulative growth over 2011-2014. Domestic demand growth

has been stronger since 2015, averaging above 3 percent annually.

Korea’s overall GDP growth slowed to a six-year low of 2.7 percent in 2018, further slowing

to 1.4 percent on a seasonally-adjusted annualized rate in the first half of 2019 due to

slowing external demand and investment. In response to external headwinds, Korea

adopted a $4.9 billion (0.3 percent of GDP) supplementary budget in August to address

downside risks to manufacturing, in addition to providing support for construction and for

air and water quality measures. 

Given the continued deterioration in both current activity and forward-looking growth

prospects, more forceful macroeconomic policy support — particularly through fiscal

policy — is warranted. Korea maintains sufficient policy space to support domestic

demand, as public sector debt remains relatively low at around 35 percent of GDP. After

progressively tightening fiscal policy from 2015-2018, in December Korea adopted a

budget for 2019 that included a 9.5 percent increase in fiscal spending compared to the

2018 budget. Since then, growth has slowed and the outlook has weakened further. A

more proactive fiscal policy stance (with a lower structural fiscal balance) would provide

needed support to domestic demand. Recent policies appear to go in this direction — the

2020 budget calls for a 9.1 percent increase in fiscal spending next year — though the

ultimate growth impact will depend on how fully proposals are implemented. While it is

important that fiscal policy remain supportive going forward, structural measures will also

be required to increase potential growth. Korea could do more to support labor force

participation by pairing new budget initiatives with comprehensive labor market reforms

that also address duality in the labor market. 

The Euro Area

The outlook for euro area growth and inflation deteriorated this year despite ongoing

employment gains and rising wages. Slowing external demand has weighed on overall

activity, while geopolitical and trade-related uncertainties have dampened economic

sentiment. In response, the ECB announced in September a package of measures that

included a cut in its deposit rate and the resumption of asset purchases later this year. At

the same time, the cyclical positions of individual member states continue to vary

considerably due to the legacies of the euro area crisis, as well as structural differences that

affect competitiveness. These dynamics have weighed on the value of the euro,

contributing to real exchange rate undervaluation for some of the more competitive

individual member countries in the currency union (e.g., Germany).
27

The euro weakened in 2019, both

on a bilateral basis against the

U.S. dollar and in broad nominal

and real effective terms. The

weakness of the euro is a multiyear phenomenon, spurred

initially by concerns about the

resilience of the monetary union

in the midst of the regional crisis

and sustained more recently by

weaker growth prospects,

chronically low inflation, and, in

response, monetary policy

accommodation. The ECB’s quantitative easing and negative interest rate policy generated

a sizable shift in bond market yield differentials between the euro area and other major

economies, which has contributed to the euro’s weakness versus its historical level in

recent years. The IMF’s most recent assessment judged the euro area’s external position to

be moderately stronger than warranted by medium-term economic fundamentals and

desirable policies. 

The ECB publishes its foreign exchange intervention, and has not intervened unilaterally in

foreign exchange markets since 2001.

Germany

Germany’s current account

surplus as a share of GDP stood

at 7.3 percent over the four

quarters through June 2019 and

remains the largest in the world

in nominal terms at $283 billion. 

While German domestic demand

contributed substantially to

growth from 2015-2018, helping

stall the growth in the current

account surplus, it was not

sufficient to appreciably reduce

external imbalances. The

persistence of Germany’s external imbalances is even more concerning amid recent signs of

slowing growth. Second quarter GDP data highlight that the weakness in German growth

that began in Q3 2018 is being driven by more than transitory factors. This further

underscores the clear need for economic policies to address the structural factors that

contribute to high domestic saving and low consumption and investment. 

Germany’s economic policies — notably excessively tight fiscal policy emanating from high

tax levels — have restrained domestic consumption and investment. Overly conservative

-5

0

5

10

20082009201020112012201320142015201620172018

2019H1

Percent of GDP

Germany: Current Account Balance

Income Services Goods Current Account Balance

Source: Deutsche Bundesbank

80

90

100

110

120

130

140

80

90

100

110

120

130

140

Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19

Indexed to 20Y Avg = 100

Euro: Exchange Rates

Bilateral vs. USD REER NEER

Sources: FRB, Bank for International Settlements
28

budget processes and national fiscal rules restricting new debt have played a role in

Germany’s excessively tight fiscal stance: Since 2014, Germany’s approved budgets have

called for fiscal balance, but stronger-than-forecast revenues and under-execution of

spending plans have meant that in fact fiscal surpluses have averaged 1 percent of GDP

over this time period, while reaching historic records of 1.1 percent of GDP and 1.7 percent

of GDP in 2017 and 2018, respectively. Germany’s substantial fiscal space should be

deployed to bolster current activity, reduce the burden of taxation — particularly through

tax cuts that would lower the labor tax wedge — and enact other growth-friendly policy

reforms, which would help external rebalancing proceed at a reasonable pace. 

Over the long run, there has been a meaningful divergence between German domestic

inflation and wage growth and (faster) average euro area inflation and wage growth

(though German wage growth has recently accelerated to above the euro area average). 

This long-run divergence has contributed to a general rise in Germany’s competitiveness

vis-à-vis its euro area neighbors. However, given the wide dispersion of economic

performance across the euro area, the euro’s nominal exchange rate has not tracked this

rise in German competitiveness. Consistent with this, the IMF estimates that in 2018

Germany’s external position remained substantially stronger than implied by economic

fundamentals, and that Germany’s real effective exchange rate was undervalued by 8-18

percent. 

Germany’s bilateral trade surplus with the United States has more than doubled since the

creation of the euro and remains a matter of significant concern. Treasury recognizes that

Germany does not exercise its own monetary policy and that the German economy

continues to experience strong gains in employment. Nevertheless, Germany is now at risk

of slipping into recession and — as the fourth-largest economy globally — has a

responsibility to contribute to more balanced demand growth and to more balanced trade

flows. The persistence of record surpluses suggests that Germany could do more to

support domestic demand and, in turn, demand for imports. This would contribute to both

global and euro area rebalancing.

Italy

A growing trade surplus pushed

Italy’s current account into

surplus from 2013 onwards,

though both the trade and

current account surplus have

moderated slightly since 2017 as

higher energy costs and weaker

external demand have weighed

on the external position. Over

the four quarters through June

2019, Italy’s current account

stood at 2.8 percent of GDP. 

-4

-2

0

2

4

20082009201020112012201320142015201620172018

2019H1

Percent of GDP

Italy: Current Account Balance

Income Services Goods Current Account Balance

Sources: Ufficio Italiano dei Cambi, Banca d'Italia
29

The United States is Italy’s third-highest export destination, and Italy’s goods trade surplus

with the United States rose to $33 billion in the first half of 2019. Italy also runs a modest

services trade surplus with the United States, at $4 billion over the same period.

The IMF’s most recent assessment describes Italy’s external position as broadly in line with

medium-term economic fundamentals. However, Italy faces longstanding structural

weaknesses that have contributed to low growth and weak social outcomes. 

Simultaneously, the high public debt level is a key source of vulnerability, which combined

with political uncertainty has raised concerns about the long-term sustainability of its

public finances. 

Italy’s growth marginally rebounded in the first half of 2019 after emerging from a

technical recession during the second half of last year. In order to escape a low-growth,

high-debt equilibrium, it is critical that Italy undertake fundamental structural reforms to

tackle deep-rooted rigidities and boost competitiveness and potential growth. Italy should

adhere to prudent fiscal management over the next several years, including a shift in the

composition of fiscal policy toward more growth-friendly and better-targeted spending, to

help reduce external vulnerabilities and bolster investor confidence. The government

should also focus on reforms to address barriers to stronger growth in Italy, such as labor

market reforms to tackle the sizable unit labor cost gap between Italy and the rest of the

euro area and other supply-side reforms that will help reinvigorate investment. 

Ireland

Over the past decade, Ireland’s

external position has been

transformed, with the current

account balance moving from a

deficit above 6 percent of GDP

pre-crisis to a surplus above 10

percent of GDP in 2018. Gross

current account flows have risen

notably, with much larger goods

trade surpluses alongside

significant income and services

trade deficits. The current

account simultaneously has

become more volatile and subject to significant data revisions: while Ireland has typically

run surpluses in recent years, the services deficit widened substantially in the second

quarter of 2019, pushing the current account into deficit by more than 0.8 percent of GDP

over the first half of this year. The significant and growing presence of large-scale foreign

multinational enterprises (MNEs) with headquarters in Ireland has contributed notably to

the average rise and increased volatility of the current account balance.

Indeed, the growing role of foreign MNEs in Ireland has created challenges with accurately

measuring economic activity that is rooted in domestic residents’ versus MNEs’ activities. 

-60

-40

-20

0

20

40

60

20082009201020112012201320142015201620172018

2019H1

Percent of GDP

Ireland: Current Account Balance

Income Services Goods Current Account Balance

Source: Central Statistics Office Ireland
30

Since 2017, Ireland’s Central Statistics Office has produced complementary metrics for

economic activity and the balance of payments which exclude the profits of re-domiciled

companies, the depreciation of intellectual property products, and aircraft leasing. The

modified economic measure — the Modified Gross National Income or GNI* — indicates

that in 2018 the Irish domestic economy was roughly 22 percent smaller than measured by

GDP. Similarly, the modified current account balance metric that filters out the volatile

activities of MNEs with limited impact on the domestic economy suggests that the current

account balance that is attributable to Irish (domestic) residents was in the range of 1-3

percent of GNI* from 2015-2017. A similar modified measure from the IMF calculated

Ireland’s 2018 adjusted current account surplus to be 3.4 percent of GDP, with the IMF

assessing Ireland’s external position to be broadly consistent with medium-term

fundamentals and desirable policy settings.

The United States is Ireland’s top export destination, with U.S. goods imports from Ireland

reaching $57 billion in 2018. Ireland has maintained a goods trade surplus with the United

States for 23 consecutive years, growing its surplus from just over $1 billion in 1996 to a

record high of roughly $49.7 billion in the four quarters to June 2019. On the other hand,

Ireland runs a significant services trade deficit with the United States; in 2018, the United

States’ services trade surplus with Ireland stood at $29 billion. 

Switzerland

Switzerland’s GDP growth reached 2.8 percent in 2018, supported by strong external

demand in early 2018 despite a slowdown in the second half of the year. The Swiss

National Bank (SNB) expects growth to weaken to between 0.5 and 1.0 percent in 2019, but

rebound modestly to trend over the medium term. Inflation remains subdued despite a

tightening labor market. Higher imported energy prices and depreciation of the franc

temporarily increased Switzerland’s headline inflation above 1 percent in mid-2018, but

subsequent reversals have caused inflation to decline to 0.6 percent in June 2019 (below

the mid-point of the SNB’s 0-2 percent price stability target).

Switzerland’s current account

surplus remains large and

persistent at 10.7 percent of GDP

over the four quarters through

June 2019. The United States’

goods trade deficit with

Switzerland was $22 billion over

the four quarters through June

2019, up from $17 billion

compared to the same period a

year earlier.

Over 2019, movements in the Swiss franc largely mirrored changes in risk sentiment. The

nominal effective exchange rate (NEER) appreciated slightly over the first 11 months of

-10

-5

0

5

10

15

20082009201020112012201320142015201620172018

2019H1

Percent of GDP

Switzerland: Current Account Balance

Income Services Goods Current Account Balance

Sources: SwissNational Bank, Haver
31

2019 period by 1.6 percent,

while the real effective exchange

rate (REER) depreciated slightly

by 0.2 percent. The SNB

maintains the assessment that

the franc is “highly valued.”

The SNB does not report foreign

exchange intervention outside of

a yearly total in its annual report. 

Based on sight deposit data,

Treasury estimates that the

SNB’s net foreign currency

purchases totaled $3 billion (0.5 percent of GDP) over the 12 months ending in June 2019. 

As a result of interventions and valuation changes, the SNB’s foreign reserves had grown to

$778 billion by the end of the second quarter of 2019 (up from $738 billion at end-2018). 

More recently, foreign exchange purchases by the SNB increased markedly over July and

August as global risk appetite deteriorated. While recent purchases come amidst

disinflationary pressures, they have been undertaken even as inflation remains positive. 

Treasury continues to encourage the Swiss authorities to transparently publish all

intervention data on a higher frequency basis.

Given the current dip in

economic growth and

substantial external surplus,

Treasury urges Switzerland to

adjust its macroeconomic

policies to more forcefully

support domestic economic

activity. Despite borrowing

costs for the Swiss government

being among the lowest in the

world, fiscal policy remains

underutilized, even within the

constraints of Switzerland’s

existing fiscal rules. As monetary policy approaches its limits, Treasury urges Switzerland

to use its ample fiscal space — with the budget in surplus and public debt around 40

percent of GDP — to cut taxes and pursue structural reforms to spur investment. In

particular, Switzerland could increase expenditures to deal with high savings related to

population aging as the high level of household savings would seem to point to a need for

improved public policies to help with population aging and retirement needs.

Singapore

Singapore has a large and persistent current account surplus that stood at 17.9 percent of

GDP over the four quarters through June 2019. The outsized current account surplus is

-5.0

0.0

5.0

10.0

15.0

20.0

Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Billion U.S. Dollars

Sources: Swiss National Bank, U.S. Treasury estimates 

Switzerland: Estimated FX Intervention

70

80

90

100

110

120

130

140

150

70

80

90

100

110

120

130

140

150

Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19

Indexed to 20Y Avg = 100

Switzerland: Exchange Rates

Bilateral vs. USD REER NEER

Sources: FRB, Bank for International Settlements
32

driven by an extremely large

goods trade surplus, partly offset

by deficits in the services trade

and income balances. The

current account surplus has

remained above 14 percent of

GDP since 2003. Over that same

period, Singapore’s national

saving rate has exceeded 40

percent of GDP, well above most

regional peers. The high saving

imbalance reflects, in part, high

forced saving and relatively

modest social safety net spending, which in concert depress consumption and push up both

public and private saving. Structural factors like a rapidly aging population and

Singapore’s status as a financial center and an oil exporter all contribute to the external

imbalance. However, these structural factors are insufficient to fully explain Singapore’s

large surpluses. The IMF’s most recent assessment found Singapore’s external position to

be substantially stronger than warranted by medium-term fundamentals and desirable

policies. 

The United States has run a steady bilateral goods trade surplus with Singapore, which

totaled $4 billion in the four quarters ending June 2019. Last year, the top U.S. exports to

Singapore included machinery, aircraft, medical instruments, mineral fuels, and

agricultural products. The U.S. goods trade surplus with Singapore reflects in part

Singapore’s role as a regional transshipment hub, with some U.S. exports to Singapore

ultimately intended for other destinations in the region.

The Monetary Authority of Singapore (MAS) tightly manages the Singaporean dollar

against a basket of trading partner currencies. Like other central banks MAS aims to

achieve price stability in the domestic economy. However, MAS is uncommon in that it

uses the nominal effective exchange rate of the Singapore dollar (the S$NEER) as its

primary tool for monetary policy rather than using interest rates because external price

pressures are more acutely felt in Singapore, where gross trade flows total roughly 400

percent of GDP. MAS manages the value of the Singapore dollar within an undisclosed

trading band and executes changes to its monetary policy stance by making adjustments to

the degree of appreciation or depreciation (i.e. the rate of change of the S$NEER) and the

width of the trading band. Within this framework, greater appreciation has the effect of

monetary tightening (analogous to an increase in the policy interest rate), while

depreciation has the opposite effect, through the pass-through of changes in the exchange

rate to the price of tradable goods. MAS executes its policy by purchasing and selling

currency in the foreign exchange market, which augments or subtracts from its stock of

official foreign reserves. When MAS believes it has an excess of reserves, it transfers assets

to Singapore’s sovereign wealth fund, GIC, for long-term investment. 

-15

-10

-5

0

5

10

15

20

25

30

35

20082009201020112012201320142015201620172018

2019H1

Percent of GDP

Singapore: Current Account Balance

Income Services Goods Current Account Balance

Sources: Monetary Authority of Singapore, Department of Statistics
33

MAS does not yet disclose its

intervention in foreign exchange

markets. However, MAS

announced on May 8, 2019 that

it would begin disclosing data on

foreign exchange intervention

operations, comprising MAS’s

net purchases of foreign

exchange on a six-month

aggregated basis, and with a sixmonth lag from the end of the

period, beginning with the data

for the second half of 2019. 

Treasury welcomes this development. Over the four quarters through June 2019, Treasury

estimates that Singapore made large net purchases of foreign exchange of at least $32

billion (9.0 percent of GDP), with purchases picking up notably in the first half of 2019

compared to 2018 levels. MAS intervention accelerated as several of Singapore’s

significant trading partners shifted towards more accommodative monetary policy, and

MAS leaned against attendant appreciation pressures. 

The Singapore dollar appreciated

by 1.3 percent against the U.S.

dollar over 2019. Over the first

11 months of 2019, the S$NEER

appreciated by 1.0 percent while

the real effective exchange rate

depreciated by 0.8 percent. The

IMF’s most recent assessment

noted that Singapore’s exchange

rate is 2.2-14.2 percent weaker

than warranted by fundamentals. 

A number of reforms would help

reduce external imbalances. 

Expanding the social safety net in areas like healthcare, unemployment insurance, and

retirement would help reduce incentives for private saving and support stronger

consumption. Reductions in the high rates for mandatory contribution to the government

pension scheme would have similar benefits in strengthening domestically driven growth. 

Further appreciation of the real effective exchange rate should play a role in facilitating

external rebalancing. 

Malaysia

Malaysia’s current account surplus declined from a high of 16.3 percent of GDP in 2008 to

2.1 percent of GDP in 2018 but rising investment income and a temporary decline in capital

imports pushed the current account surplus up to 3.0 percent of GDP over the four quarters

ending June 2019. This trend of external rebalancing has been facilitated by higher levels

-10

-5

0

5

10

Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Billion U.S. Dollars

Singapore: Estimated FX Intervention

Est. Spot Market Intervention Change in Net Forward Book

Sources:Monetary Authority of Singapore, U.S. Treasury estimates

80

90

100

110

120

130

80

90

100

110

120

130

Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19

Indexed to 20Y Avg = 100

Singapore: Exchange Rates

Bilateral vs. USD REER NEER

Sources: FRB, Bank for International Settlements
34

of both consumption and

investment, following years of

elevated national savings. In

2008, gross national saving was

39 percent of GDP; by 2018, it

had fallen to 26 percent of GDP. 

As of June, 2019, gross national

savings edged higher to 27

percent. 

A significant decline in

Malaysia’s overall goods trade

surplus has been a key factor in

the general narrowing of the current account surplus over the last decade; nonetheless, the

goods trade surplus remains large, and steadily exceeded 8 percent of GDP in recent years. 

Malaysia’s key exports include electronics and petroleum products. The goods trade

surplus has been partly counterbalanced by a large income deficit. 

Over the four quarters through June 2019, Malaysia’s goods trade surplus with the United

States stood at $26 billion, roughly unchanged from the same period in 2018. Malaysia’s

largest goods exports to the United States were electrical machinery, optical and medical

instruments, rubber, and furniture. The largest U.S. goods exports to Malaysia were

electrical machinery, aircraft, optical and medical instruments, and plastics. 

Bank Negara Malaysia (BNM)

maintains a floating exchange

rate regime, although BNM often

intervenes in the foreign

exchange market. Over the first

11 months of 2019, the ringgit

depreciated 1.1 percent against

the dollar and 0.6 percent on a

real effective basis, while the

nominal effective exchange rate

appreciated by 0.6 percent. The

IMF’s most recent assessment

estimated the ringgit to be 3-7

percent weaker in real effective terms than what is warranted by fundamentals and

desirable policies. 

Malaysia does not publish intervention data, but based on Treasury estimates of BNM

intervention activity, BNM has demonstrated a pattern over time of intervening on both

sides of the market, as illustrated by alternating periods of significant net sales and net

purchases of foreign exchange over the last few years. Treasury estimates that over the

four quarters through June 2019 on net BNM sold about $1 billion in foreign exchange

70

80

90

100

110

120

130

70

80

90

100

110

120

130

Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19

Indexed to 20Y Avg = 100

Malaysia: Exchange Rates

Bilateral vs. USD REER NEER

Sources: FRB, Bank for International Settlements

-10

-5

0

5

10

15

20

25

20082009201020112012201320142015201620172018

2019H1

Percent of GDP

Malaysia: Current Account Balance

Income Services Goods Current Account Balance

Source: Department of Statistics Malaysia
35

(equivalent to 0.3 percent of

GDP) in support of the ringgit in

the midst of depreciation

pressures. 

Malaysia’s substantial external

rebalancing over the last decade

is welcome, and the authorities

should pursue appropriate

policies to firmly entrench it. 

Continuing to promote efficient

and well-targeted social

spending will help avoid

excessive levels of precautionary saving. The authorities should seek to foster more highquality and transparent investment, particularly from the private sector. The authorities

should continue to allow the exchange rate to move to reflect economic fundamentals and

limit foreign exchange intervention to circumstances of disorderly market conditions,

while increasing transparency of foreign exchange intervention.

Vietnam

Over the last decade, Vietnam’s large and skilled labor force, competitive wages, and young

and well-educated population have drawn large numbers of foreign invested enterprises

(FIEs) to operate in Vietnam. As a result, Vietnam’s inbound foreign direct investment, the

majority of which is concentrated in export sectors, has steadily increased, reaching a

record $16 billion (6 percent of GDP) over the four quarters through June 2019. 

The rapid growth of the FIE sector has transformed Vietnam’s external position. The large

trade and current account deficits that persisted throughout the 2000s were eliminated,

and from 2012 onwards a large goods trade surplus emanating from electronics and other

manufacturing help raise the current account balance. In recent years, there has been a

growing gap between the trade surplus in the FIE sector (15 percent of GDP) and a trade

deficit in the domestic sector (8.3 percent of GDP). The IMF assesses Vietnam’s external

position to be substantially stronger than warranted by fundamentals and desirable

policies, and reflects the relatively unproductive domestic economy and constraints on

private investment.

The large goods trade surplus has been offset in recent years by deficits in both services

trade and primary income, and the current account surplus stood at 1.7 percent of GDP

over the four quarters through June 2019.15 The IMF expects the current account to

continue declining in the medium term, based on a smaller trade surplus as economic

duality diminishes. 

 15 Vietnam continues to revise its balance of payments statistics in consultation with the IMF. The results of

recent revisions improved the estimation of primary income, subsequently shrinking recent current account

deficits.

-8

-6

-4

-2

0

2

4

6

Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Billion U.S. Dollars

Malaysia: Estimated FX Intervention

Est. Spot Market Intervention Change in Net Forward Book

Sources:Bank Negara Malaysia, U.S. Treasury estimates
36

In the four quarters through June

2019, Vietnam’s goods trade

surplus with the United States

reached $47 billion, the sixth

largest among the United States’

trading partners and a 18

percent increase over the annual

surplus in 2018. The growing

trade surplus with the United

States reflects a large expansion

of Vietnam’s export capacity in

apparel and technology, and its

growing global supply chain

integration, but also tariff and non-tariff barriers that have impeded U.S. companies’ and

agricultural producers’ access to the Vietnamese market in automobiles, agriculture, digital

trade, electronic payments, and other areas. 

There has been a particular rise this year in certain imported goods from Vietnam, which

tracks the fall in imports of similar goods from China. This partly reflects the movement of

supply chains, as well as increasing production in existing factories, in both lower value

added products (apparel, shoes, and bags) and higher valued added electronics and

electrical equipment. However, some of this supply chain migration effect could be

overstated because of transshipment to avoid tariffs on Chinese imports. Vietnamese

authorities have acknowledged this problem and claim to have prosecuted over 1,300

cases of trade-related fraud in the first six months of 2019. In addition, Vietnam issued

draft regulations regarding country-of-origin labeling. Vietnam should continue to

strengthen its legal framework for combatting trade-related fraud, and to strengthen

enforcement measures to reduce transshipment.

Vietnam’s authorities tightly manage the value of the dong. Since January 2016, the State

Bank of Vietnam (SBV) has allowed the dong to float +/- 3 percent against a basket of

currencies within a previously established trading band, with daily updates to the

reference rate. Based on cross rates between the dong and the currencies in the basket, the

SBV still appears to manage the dong far more closely to the U.S. dollar than to any other

reference, and in very few

instances has the dong reached

the edge of the band during

trading. 

The dong has been relatively

stable on a nominal basis since

2011, both against the dollar and

on a broad, trade-weighted basis. 

In this context, and amid strong

productivity growth with the rise

of the FIE sector, together with

-12

-10

-8

-6

-4

-2

0

2

4

6

8

2008

2009201020112012201320142015201620172018

2019H1

Percent of GDP

Vietnam: Current Account Balance

Income Services Goods Current Account Balance

Sources: IMF BOP statistics, State Bank of Vietnam

70

80

90

100

110

120

130

70

80

90

100

110

120

130

Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19

Indexed to 20Y Avg = 100

Vietnam: Exchange Rates

Bilateral vs. USD REER NEER

Sources: Vietcombank, JP Morgan
37

bouts of much higher inflation than its trading partners, the REER appreciated notably

from end-2010 to end-2015, rising by 22 percent, and was broadly stable from 2015 to

present. The dong remained virtually flat against the dollar in 2019, while the NEER and

REER appreciated 1.7 and 2.2 percent over the first 11 months of 2019, respectively. The

most recent IMF assessment indicated that the dong was 8.4 percent undervalued on a real

effective basis as of 2018.

Vietnam does not publish data on foreign exchange intervention. However, the Vietnamese

authorities have credibly conveyed to Treasury that net purchases of foreign exchange

were 0.8 percent of GDP over the four quarters through June 2019.16 Vietnam intervened

in both directions over the course of these four quarters: The authorities sold foreign

exchange over the second half of 2018 as financial turbulence in a few large emerging

markets led to a pullback from other smaller emerging markets and created downward

pressure on many emerging market currencies, including the dong. As global financial

conditions eased and holiday-related remittances increased in early 2019, the authorities

shifted to purchasing foreign exchange, with net purchases over the first half of 2019

modestly outweighing net foreign exchange sales over the prior six months. Treasury

urges the authorities to enhance the timeliness and transparency of data on foreign

exchange reserves, intervention, and external balances.

Vietnam’s foreign exchange reserves have been below standard adequacy metrics for

several years. For example, during the period of currency market stress in 2015, reserves

declined to $29 billion, equivalent to only 1.9 months of import coverage. Since that time,

the central bank has gradually rebuilt its reserves, though the IMF continues to assess that

Vietnam’s reserves remain below adequate levels, standing at 76 percent of the IMF’s

reserve adequacy metric (for fixed exchange rate regimes) as of end-2018.

Further structural reforms are crucial for building greater resilience and stability into this

dynamic economy. A stronger, modernized monetary policy framework will allow the SBV

to transition to an inflation-targeting monetary policy regime. Vietnam should prioritize

improving the quality and accuracy of financial data, which will allow the SBV to better

monitor and respond to financial vulnerabilities. Reducing the reliance on credit growth

targets, which contribute to financial sector risks, will enable financial institutions to better

allocate capital and manage risks. As Vietnam strengthens its monetary policy framework,

and reserves reach adequate levels, Vietnam should reduce its intervention and allow for

movement in the exchange rate in line with economic fundamentals, including gradual

appreciation of the real effective exchange rate, which will help reduce external

imbalances, including the bilateral trade surplus with the United States.

 16 Forward intervention is included on a trade date basis.
38

Section 2: Intensified Evaluation of Major Trading Partners

The Omnibus Trade and Competitiveness Act of 1988 (the “1988 Act”) requires the

Secretary of the Treasury to provide semiannual reports to Congress on international

economic and exchange rate policy. Under Section 3004 of the 1988 Act, the Secretary

must:

“consider whether countries manipulate the rate of exchange between their currency

and the United States dollar for purposes of preventing effective balance of payments

adjustment or gaining unfair competitive advantage in international trade.” 

This determination may encompass analysis of a broad range of factors, including not only

trade and current account imbalances and foreign exchange intervention (criteria under

the second piece of legislation discussed below), but also currency developments, the

design of exchange rate regimes and exchange rate practices, foreign exchange reserve

coverage, capital controls, monetary policy, and trade policy actions, as well as foreign

exchange activities by quasi-official entities that may be undertaken on behalf of official

entities, among other factors.

The Trade Facilitation and Trade Enforcement Act of 2015 (the “2015 Act”) requires the

Secretary of the Treasury to provide semiannual reports on the macroeconomic and

foreign exchange rate policies of the major trading partners of the United States. Section

701 of the 2015 Act requires that Treasury undertake an enhanced analysis of exchange

rates and externally-oriented policies for each major trading partner “that has— (1) a

significant bilateral trade surplus with the United States; (2) a material current account

surplus; and (3) engaged in persistent one-sided intervention in the foreign exchange

market.” Additionally, the 2015 Act establishes a process to engage economies that may be

pursuing unfair practices and impose penalties on economies that fail to adopt appropriate

policies.

Key Criteria

Pursuant to Section 701 of the 2015 Act, this section of the Report seeks to identify any

major trading partner of the United States that has: (1) a significant bilateral trade surplus

with the United States, (2) a material current account surplus, and (3) engaged in

persistent one-sided intervention in the foreign exchange market. Required data for the

most recent four-quarter period (July 2018 to June 2019, unless otherwise noted) are

provided in Table 1 (p. 19) and Table 2 (p. 40). 

As noted earlier, Treasury reviews developments in the 20 largest trading partners of the

United States whose bilateral goods trade exceeds $40 billion annually; these economies

account for more than 80 percent of U.S. trade in goods over the four quarters through June

2019. This includes all U.S. trading partners whose bilateral goods surplus with the United

States in 2018 exceeded $20 billion. Treasury’s goal is to focus attention on those

economies whose bilateral trade is most significant to the U.S. economy and whose policies

are the most material for the global economy. 
39

The results of Treasury’s latest assessment pursuant to Section 701 of the 2015 Act are

discussed below.

Criterion (1) – Significant bilateral trade surplus with the United States:

Column 1 in Table 2 provides the bilateral goods trade balances for the United States’

20 largest trading partners for the four quarters ending June 2019.17 China has the largest

trade surplus with the United States by far, after which the sizes of the bilateral trade

surpluses decline notably. Treasury assesses that economies with a bilateral goods surplus

of at least $20 billion (roughly 0.1 percent of U.S. GDP) have a “significant” surplus. 

Highlighted in red in column 1 are the 12 major trading partners that have a bilateral

surplus that meets this threshold over the most recent four quarters. Table 3 provides

additional contextual information on bilateral trade, including services trade, with these

trading partners. 

 17 Although this Report does not treat the euro area itself as a major trading partner for the purposes of the

2015 Act – this Report assesses euro area countries individually – data for the euro area are presented in

Table 2 and elsewhere in this Report both for comparative and contextual purposes, and because policies of

the ECB, which holds responsibility for monetary policy for the euro area, will be assessed as the monetary

authority of individual euro area countries.

Goods Surplus with 

United States (USD 

Bil., Trailing 4Q) 

(1a)

Goods Surplus with 

United States (% of 

GDP, Trailing 4Q) 

(1b)

Goods Trade 

(USD Bil., 

Trailing 4Q) 

(1c)

Services Surplus with 

United States (USD 

Bil., Trailing 4Q)* 

(1d)

Services Surplus with 

United States (% of 

GDP, Trailing 4Q)* 

(1e)

Services Trade 

(USD Bil., 

Trailing 4Q)* 

(1f)

China 401 3.9 617 -37 -0.4 75

Mexico 93 10.0 620 -7 -0.8 59

Japan 69 1.8 221 -10 -0.3 82

Germany 67 2.3 184 0 0.0 69

Italy 33 2.2 79 4 0.2 24

Canada 21 1.7 613 -28 -2.2 101

India 21 1.0 93 4 0.2 55

Korea 20 1.6 136 -9 -0.7 34

France 19 0.9 94 -3 -0.1 40

Taiwan 18 4.0 82 -2 -0.4 18

United Kingdom -4 -0.2 129 -13 -0.6 136

Singapore -4 -1.6 58 -13 -4.8 32

Brazil -9 -0.7 73 -21 -1.5 33

Netherlands -24 -3.5 79 -6 -0.9 32

Hong Kong -29 -10.3 39 -3 -0.9 24

Memo : Euro Area 156 1.6 638 -34 -0.3 292

Ireland 50 17.4 69 -29 -7.7 68

Vietnam 47 24.6 67 -1 -0.5 4

Malaysia 26 9.5 51 -1 -0.4 5

Switzerland 22 4.2 62 -18 -2.5 61

Thailand 19 4.9 45 1 0.2 7

Belgium -14 -3.5 52 -1 -0.1 11

Source: U.S. Census Bureau, Bureau of Economic Analysis

*Quarterly services data is through Q2 2019. For trading partners where quarterly bilateral services trade data are not available, annual services data 

through 2018 is used. Services data is reported on a balance of payments basis (not seasonally adjusted), while goods data is reported on a census basis 

(not seasonally adjusted).

Economies with quarterly services trade data through Q2 2019

Economies with annual services trade data through 2018

Table 3. Major Foreign Trading Partners - Expanded Trade Data

Bilateral Trade
40

Goods Surplus with 

United States (USD 

Bil., Trailing 4Q) 

(1)

Balance

(% of GDP, 

Trailing 4Q)

(2a)

3 Year Change 

in Balance

(% of GDP) 

(2b)

Balance

(USD Bil., 

Trailing 4Q)

(2c)

Net Purchases

(% of GDP, 

Trailing 4Q)

(3a)

Net Purchases

(USD Bil., 

Trailing 4Q)

(3b)

Net Purchases

(USD Bil., 

Trailing 2Q)

(3c)

Net Purchases

6 of 12 

Months†

(3d)

China 401 1.2 -1.2 166 -0.3 -40 -1 No

Mexico 93 -1.0 1.7 -13 0.0 0 0 No

Japan 69 3.4 -0.2 168 0.0 0 0 No

Germany 67 7.3 -1.5 283 .. .. .. ..

Ireland 50 -0.8 0.4 -3 .. .. .. ..

Vietnam 47 1.7 1.2 4 0.8 2 9 No

Italy 33 2.8 0.7 56 .. .. .. ..

Malaysia 26 3.0 0.9 11 -0.3 -1 6 Yes

Switzerland 22 10.7 0.9 74 0.5 3 2 Yes

Canada 21 -2.2 1.3 -37 0.0 0 .. No

India 21 -2.0 -1.3 -56 -0.6 -15 9 Yes

Korea 20 4.0 -3.5 67 -0.5 -8 -7 No

Thailand 19 5.3 -4.4 27 1.5 8 9 Yes

France 19 -0.7 -0.2 -18 .. .. .. ..

Taiwan 18 11.0 -2.8 66 0.1 1 1 Yes

United Kingdom -4 -5.0 0.4 -141 0.0 0 .. No

Singapore -4 17.9 0.3 65 9.0 32 27 Yes

Brazil -9 -2.4 -0.8 -44 -0.5 -10 1 No

Belgium -14 -1.3 -2.2 -7 .. .. .. ..

Netherlands -24 10.3 2.2 93 .. .. .. ..

Memo : Euro Area 156 2.7 -0.4 362 0.0 0 0 No

† In assessing the persistence of intervention, Treasury will consider an economy that is judged to have purchased foreign exchange on net for 6 of the 12 months to 

have met the threshold.

Table 2. Major Foreign Trading Partners Evaluation Criteria

Current Account FX Intervention

Sources: Haver Analytics; National Authorities; U.S. Census Bureau; and U.S. Department of the Treasury Staff Estimates

Bilateral Trade

Note: Current account balance measured using BOP data, recorded in U.S. dollars, from national authorities.
41

Criterion (2) – Material current account surplus:

Treasury assesses current account surpluses in excess of 2 percent of GDP to be “material”

for the purposes of enhanced analysis. Highlighted in red in column 2a of Table 2 are the

10 economies that had a current account surplus in excess of 2 percent of GDP for the four

quarters ending June 2019. In the aggregate, these 10 economies accounted for around

two-thirds of the value of global current account surpluses in 2018. Column 2b shows the

change in the current account surplus as a share of GDP over the last three years, although

this is not a criterion for enhanced analysis. 

Criterion (3) – Persistent, one-sided intervention: 

Treasury assesses net purchases of foreign currency, conducted repeatedly, in at least 6 out

of 12 months, totaling at least 2 percent of an economy’s GDP to be persistent, one-sided

intervention.18 Columns 3a and 3d in Table 2 provide Treasury’s assessment of this

criterion.19 In economies where foreign exchange interventions are not published,

Treasury uses estimates of net purchases of foreign currency to proxy for intervention. 

Singapore met this criterion for the four quarters ending June 2019, per Treasury

estimates.

Summary of Findings

Pursuant to the 2015 Act, Treasury finds that no major trading partner met all three

criteria in the current reporting period based on the most recent available data. Nine

major trading partners, however, met two of the three criteria for enhanced analysis under

the 2015 Act in this Report or in the May 2019 Report. Additionally, one major trading

partner, China, constitutes a disproportionate share of the overall U.S. trade deficit. These

10 economies — China, Japan, Korea, Germany, Italy, Ireland, Switzerland,

Singapore, Malaysia, and Vietnam — constitute Treasury’s Monitoring List. 

• China has met one of the three criteria in every Report since the October 2016 Report,

having a significant bilateral trade surplus with the United States, with this surplus

accounting for a disproportionate share of the overall U.S. trade deficit. 

 18 Notably, this quantitative threshold is sufficient to meet the criterion. Other patterns of intervention, with

lesser amounts or less frequent interventions, might also meet the criterion depending on the circumstances

of the intervention. 19 Treasury uses publicly available data for intervention on foreign asset purchases by authorities, or

estimated intervention based on valuation-adjusted foreign exchange reserves. This methodology requires

assumptions about both the currency and asset composition of reserves in order to isolate returns on assets

held in reserves and currency valuation moves from actual purchases and sales, including estimations of

transactions in foreign exchange derivatives markets. Treasury also uses alternative data series when they

provide a more accurate picture of foreign exchange balances, such as China’s monthly reporting of net

foreign assets on the PBOC’s balance sheet and Taiwan’s reporting of net foreign assets at its central bank. To

the extent the assumptions made do not reflect the true composition of reserves, estimates may overstate or

understate intervention. Treasury strongly encourages those economies in this Report that do not currently

release data on foreign exchange intervention to do so.
42

• Japan and Germany have met two of the three criteria in every Report since the April

2016 Report (the initial Report based on the 2015 Act), having material current account

surpluses combined with significant bilateral trade surpluses with the United States. 

• Korea has met two of the three criteria in every Report since April 2016 with the

exception of the May 2019 Report, having a material current account surplus and a

significant bilateral trade surplus with the United States. While Korea’s bilateral trade

surplus with the United States briefly dipped below the threshold in 2018, it has since

risen back above the threshold. 

• Italy and Malaysia have met two of the three criteria since the May 2019 Report, having

a material current account surplus and a significant bilateral trade surplus with the

United States. 

• Singapore has met two of the three criteria since the May 2019 Report, having a

material current account surplus and engaged in persistent, one-sided intervention in

the foreign exchange market.

• Ireland and Vietnam met two of the three criteria in the May 2019 Report, having a

material current account surplus and a significant bilateral trade surplus with the

United States. Ireland and Vietnam met one of the three criteria in this Report, having a

significant bilateral trade surplus with the United States. 

• Switzerland met two of the three criteria in this Report, having a material current

account surplus and a significant bilateral trade surplus with the United States. 

Switzerland previously was included on the Monitoring List in every Report between

October 2016 and October 2018, having a material current account surplus and

engaged in persistent, one-sided intervention in the foreign exchange market.

Treasury will closely monitor and assess the economic trends and foreign exchange

policies of each of these economies.

Further, based on the analysis in this Report, Treasury has concluded that China should no

longer be designated as a currency manipulator at this time. Additionally, no other major

trading partner of the United States met this 1988 Act standard during the period covered

in this Report. 

Global growth continues to be held back by the lack of adequate policy support, especially

from fiscal policy, and from slow progress in implementing growth-friendly structural

reforms. Moreover, the global economy remains marked by persistent and excessive trade

and current account imbalances. Subdued real interest rates across the global economy are

a symptom of substantial excess saving that is not being productively employed within the

domestic economies of Germany, the Netherlands, China, and other major economies. 

Global growth would be both stronger and more balanced if key economies that have

maintained large and persistent external surpluses would reduce the burden of taxation,

roll back regulatory impediments to investment and innovation, and dismantle barriers to

trade. This would establish a firmer foundation for strong, domestically driven growth

across the global economy.
43

Glossary of Key Terms in the Report

Exchange Rate – The price at which one currency can be exchanged for another. Also

referred to as the bilateral exchange rate.

Exchange Rate Regime – The manner or rules under which an economy manages the

exchange rate of its currency, particularly the extent to which it intervenes in the foreign

exchange market. Exchange rate regimes range from floating to pegged.

Floating (Flexible) Exchange Rate – An exchange rate regime under which the foreign

exchange rate of a currency is fully determined by the market with intervention from the

government or central bank being used sparingly.

Foreign Exchange Reserves – Foreign assets held by the central bank that can be used to

finance the balance of payments and for intervention in the exchange market. Foreign

assets consist of gold, Special Drawing Rights (SDRs), and foreign currency (most of which

is held in short-term government securities). The latter are used for intervention in the

foreign exchange markets.

Intervention – The purchase or sale of an economy’s currency in the foreign exchange

market by a government entity (typically a central bank) in order to influence its exchange

rate. Purchases involve the exchange of an economy’s own currency for a foreign currency,

increasing its foreign currency reserves. Sales involve the exchange of an economy’s

foreign currency reserves for its own currency, reducing foreign currency reserves. 

Interventions may be sterilized or unsterilized.

Nominal Effective Exchange Rate (NEER) – A measure of the overall value of an

economy’s currency relative to a set of other currencies. The effective exchange rate is an

index calculated as a weighted average of bilateral exchange rates. The weight given to

each economy’s currency in the index typically reflects the amount of trade with that

economy. 

Pegged (Fixed) Exchange Rate – An exchange rate regime under which an economy

maintains a set rate of exchange between its currency and another currency or a basket of

currencies. Often the exchange rate is allowed to move within a narrow predetermined

(although not always announced) band. Pegs are maintained through a variety of

measures, including capital controls and intervention.

Real Effective Exchange Rate (REER) – A weighted average of bilateral exchange rates,

expressed in price-adjusted terms. Unlike the nominal effective exchange rate, it is further

adjusted for the effects of inflation in the countries concerned. 

Trade Weighted Exchange Rate – see Nominal Effective Exchange Rate.