Treasury Again Refuses to Label China a "Currency Manipulator"... Albeit Very, Very Quietly

The US Treasury Department issued its (supposedly) Semiannual Report on International Economic and Exchange Rate Policies late this afternoon, in which it can deem countries to be "currency manipulators" under Sections 3004 and 3005 of the Omnibus Trade and Competitiveness Act of 1988.  Once again, Treasury declined to label China a "manipulator" - a decision that, as I've noted repeatedly, is good news from a legal, political and diplomatic perspective.  Here's the money quote from the press release on today's report:

Based on the resumption of exchange rate flexibility last June and the acceleration of the pace of real bilateral appreciation over the past few months, and in view of the commitment during President Hu’s state visit that China will intensify its efforts to expand domestic demand and further enhance exchange rate flexibility, Treasury has concluded that the standards identified in Section 3004 of the Act during the period covered in this report have not been met with respect to China. Treasury’s view, however, is that progress thus far is insufficient and that more rapid progress is needed. Treasury will continue to closely monitor the pace of appreciation of the RMB by China.

Three quick notes here:

• For the first time that I can recall, the Treasury report highlights the yuan's "real bilateral appreciation" rather than the economically meaningless nominal exchange rate.  As I've repeatedly documented here, Chinese inflation (due to a combination of loose money, China's currency peg and an increasingly tight labor market) is causing a pretty dramatic increase in the real RMB-USD exchange rate, and thus basic economics is peacefully accomplishing what protectionist bullying never could (or should try to) do.  It's good that Treasury is finally noticing this phenomenon and adjusting its rhetoric accordingly, rather than obsessing on the nominal rate like some silly US politicians insist on doing.

• It's pretty clear that the Obama administration is trying to bury this report in order to avoid backlash from the currency hawks in Congress (most of whom are in the President's own party).  Considering that this report's conclusions are correct (and good news for a vast majority of Americans), I'm certainly not complaining, but it's still worth noting just how much the White House wanted this report buried.  First, the report was issued on a Friday afternoon - a classic "news dump" strategy for this administration (and its predecessor).  Second, the report was released off-schedule when nobody was expecting it.  Under US law, the report is supposed to be issued on the 15ths of April and October every year, so today's report is either four months late or two months early. (I predicted that the October report would be delayed, but this is ridiculous!)  Third, it's Super Bowl weekend, and, well, other things are dominating the news cycle.  There literally might not be a better day - all year - than today for the White House to release news that it wants buried.  Seriously.  And considering that this report's conclusions are positive-yet-politically-sensitive, today's timid announcement says plenty about this administration's willingness to stand up to congressional protectionists - something to keep in mind when considering the prospects for the Korea, Panama and Colombia FTAs.

• Finally, I have no idea if an April 2011 report is in the works, but I'd be rather surprised if it were for two reasons: (i) there's no mid-year G-20 meeting in 2011 to act as a public pressure point for further RMB appreciation; and (ii) there just aren't enough dead Friday afternoons available between now and April 15th to release another "controversial" report essentially saying the same exact thing.