The Trump administration stopped short of branding China and Germany currency manipulators, despite having accused both countries of keeping their currencies artificially low to gain unfair advantage in trade with the U.S.
The report showed the high priority the administration puts on addressing trade imbalances and said it would be "scrutinizing China's trade and currency practices very closely". The countries China, Japan, Germany, South Korea, Taiwan and Switzerland were the same six named in the last currency report issued by the Obama administration in October.
The decision was expected after President Donald Trump this week reversed himself and said China was not a currency manipulator.
While China has been criticized for years by other countries for its heavy-handed efforts to keep the yuan undervalued, Beijing has lately been doing the opposite, by trying to prop up its currency.
With (Other OTC: WWTH - news) a trade surplus in goods with the United States of $347 billion past year, and continued policies that restrict free trade, "Treasury will be scrutinizing China's trade and currency practices very closely".
Treasury Secretary Steven Mnuchin said ensuring a level playing field for United States businesses is an "essential component of this administration's strategy".
China met only one of the three criteria required to be labeled a currency manipulator - a large trade surplus with the United States - while Germany also met a second: a current account surplus amounting to more than three percent of the nation's economic output. The report is the government's formal channel to impose the manipulator designation, leading to a year of negotiations for a solution and penalties if the practice continues. Such tariffs, though, could be overturned in a review by the World Trade Organization.
The administration's first report to Congress on foreign exchange policies of USA trading partners continues the stance of the Obama administration, putting those and four other countries on a watch list, though using a much tougher tone.
"China now has an extremely large and persistent bilateral trade surplus with the United States, which underscores the need for further opening of the Chinese economy to American goods and services", as well as quicker reforms to boost household consumption, according to the Treasury report.
"The basic message is that Japan needs to expand its domestic demand and one can read this as them telling Japan to import more American goods", said Minami of the Norinchukin Research Institute. But on Wednesday, he backed away from that promise in a Wall Street Journal interview.
Trump did say he thought the dollar was "getting too strong" a comment that sent the US currency falling, though it subsequently rebounded.
The report said that China remained on the list because of its "disproportionate share of the overall US trade deficit", despite that China's current account surplus was only 1.8 percent of GDP in 2016, sharply down from 2.8 percent of GDP in 2015. Economists say the US currency could rise further as the Federal Reserve raises interest rates.
Trump's policy reversal on China sends a signal to global finance chiefs ahead of next week's meeting in Washington, D.C., that Trump could soften the aggressive trade positions he staked out during his campaign.