The United States, which has waged a trade war with China, has designated China as a currency manipulation nation on May 5 (local time).

In the meantime, the United States has used the criteria for evaluating the foreign exchange policy of major trading partners in the meantime. This designation is based on the comprehensive trade law of 1988.

The US Treasury Department said in a statement released today, "The comprehensive trade law of 1988 requires the Treasury Secretary to analyze the exchange rate policy of other countries."

The Treasury Department said it has made the decision in accordance with Article 3004 of the Act, which requires countries to consider whether to manipulate exchange rates to prevent balance adjustments or to gain unfair competitive advantage in international trade.

In particular, the Ministry of Finance said, "Recently, China has made concrete measures to lower the value of its currency." "There is a long history in which China has facilitated the depreciation of the currency through continuous and large-scale intervention in the foreign exchange market."

The Ministry of Finance submits reports on economic and exchange rate policies to major trading partners twice a year in accordance with the General Trade Law and the Trade Promotion Act.

A currency manipulation bureau is a concept as stipulated in the General Trade Law, which allows a country with a significant US trade surplus and a significant current account surplus to be designated as a currency manipulation bureau.

However, according to the criticism that the standard is voluntary and the concept is ambiguous, the United States has created the Trade Promotion Act in 2015 to set standards for the "in-depth analysis target country" and "observation target country"

Under the General Trade Act, exchange rate manipulation bureaus are generally accepted in the same sense as in-depth analysis of the Trade Promotion Act.

In the end, the United States changed the law, which became a designation basis, to the general trade law, which was a weapon of the past, when it was not possible to designate a real exchange rate manipulation country through the Trade Promotion Act.

Previously, the United States designated China as a currency manipulation country in 1992.

At that time, the United States classified China as a currency manipulation country, saying that China has been recording a large current account surplus since 1990, and that the yuan has been undervalued and has not improved since the signing of a Memorandum of Understanding with the United States in 1992.

Since then, China has made efforts to make improvements such as the creation of a joint committee for reforming the US and the exchange rate system, and the US lifted China from the currency manipulation bureau in December 1994.

The Wall Street Journal (WSJ) said, "The decision to designate China as the currency manipulation country for the first time since 1994" is related to the designation.

It is designated again in 25 years.

If designated as a currency manipulation state, the United States will ask the country for undervalued exchange rates and excessive trade surplus correction.

However, if it does not improve after one year, it may be subject to specific sanctions such as restricting US investments in the country, restricting US federal procurement contracts of the countries in question, and requesting further monitoring of the International Monetary Fund (IMF).

Although the General Trade Law does not specifically specify the requirements of the currency manipulation bureau, the Trade Promotion Act requires that when the three requirements are met, it will be designated as an in-depth analysis target country.

This is due to a significant US trade surplus of more than US $ 20 billion over the past year, a considerable current account surplus exceeding 2% of GDP, and a persistent and unilateral foreign exchange market intervention in which foreign exchange is net bought in excess of 2% And so on.

Regardless of whether two of the three requirements are met, or where the size of the trade surplus with the United States is large and where the weight of the trade surplus is high, it is classified as an observing country.

If it is designated by the Trade Promotion Act to be an in-depth analysis target country, ie, a currency manipulation country, it will be subject to exclusion of financial support from the US Overseas Civil Investment Corporation (OPIC), prohibition of entry into the US government procurement market, and pressure through IMF and US trade agreements.

The United States, which has classified China as a target country for the time being, has also been designated as a target country in the first half of the report, 'Macroeconomic and Exchange Rate Policy Report of the Major Trading Companies'

At that time, the United States did not designate a country to be analyzed in depth under the Exchange Act or the Trade Promotion Act under the General Trade Act.

However, regardless of the timing of the announcement of the exchange rate report, we have decided to use China as a currency manipulation station based on the Comprehensive Trade Law, and have implemented strong pressure measures.

It seems that the intention was to calm down the depreciation of the currency of the yuan and to reverse it in the face of appreciation.

In addition to having a direct impact on Chinese companies, they may also bring additional countermeasures in trade and trade between the two countries, which may have an indirect impact or a wider effect.

Bloomberg said, "The designation of a currency manipulation station for China is not an immediate punishment but it can shake financial markets."

"The Treasury will report twice a year to Congress, but it will be out of the process," Bloomberg said.