Bessent's first FX report aims to bring clarity to interconnected elements
In recent reports, the United States' role in global imbalances (GIs) has been under scrutiny. The latest Foreign Exchange Report from the Treasury, released on 5 June, and Scott Bessent's speech at the Institute for International Finance have shed light on the country's contribution to this ongoing issue.
Scott Bessent, in his speech, rightly emphasized that GIs remain a major international economic concern and called for renewed attention to this pressing problem. He suggested that the International Monetary Fund's treatment of GIs tends to be timid, underlining the need for a stronger focus on this problem.
The Treasury report and Bessent's speech recognized the United States as a key player in global imbalances but highlighted contradictions in US policy. For example, while rhetorically supporting trade rebalancing, the current administration pursues conflicting goals—trying to undervalue the dollar while simultaneously attracting massive capital inflows. This tension complicates efforts to effectively resolve imbalances.
The Treasury Foreign Exchange Report emphasized "destructive trade deficits" and unfair foreign trade practices but found no active currency manipulators. The report's technical analysis detailed exchange rate and economic data, outlining how US trade and capital flow policies impact global imbalances.
Both Bessent and the Treasury report identified China's large surpluses as a chief contributor to global imbalances, framing it as a principal culprit alongside US deficits. The US has been negotiating trade deals, including with China, aiming to recalibrate trade relations and address imbalances, although details of these agreements remain pending.
The report also criticized China for producing excess capacity unable to be absorbed domestically and shipping it abroad, happening amid a highly undervalued exchange rate. The dollar has risen sharply under the Joe Biden administration, and the real dollar remains very strong.
In substance, the report was similar to Secretary Janet Yellen's, praising Germany's fiscal U-turn and its potential impact on reducing longstanding excessive current account surpluses. The report also offers a solid analysis that gets much right, beyond the opening theatrical verbiage.
The next Foreign Exchange Report should focus on the Taiwan dollar's recent appreciation, a currency that has been highly and persistently undervalued. The report could have provided a deeper analysis, particularly regarding the US economy, exchange rates, and global imbalances.
Switzerland finds itself on the monitoring list, and the Treasury could better connect the challenges faced by Swiss monetary policy. The report could potentially pose whether it believes China has considerable fiscal space. Chinese transshipments are unacceptable, according to the report, but reshoring to America is not a viable solution.
In summary, America's contribution to global imbalances lies primarily in its persistent large trade deficits and contradictory policies that both weaken the dollar and attract capital inflows, complicating efforts to rebalance global trade and capital flows. Bessent’s perspective, as reflected in the Institute for International Finance speech and Treasury reports, calls for renewed focus on these issues and acknowledges the complexity of US policy and its global effects.
Interested individuals can subscribe to OMFIF's newsletter for more information on this topic, as Mark Sobel, US Chair of OMFIF, is launching Global Public Investor 2025 on 24 June. The Treasury's Future Foreign Exchange Reports might provide a more comprehensive analysis of the Treasury's views on the nexus of global imbalances.
- Scott Bessent, in his speech, emphasized that global imbalances (GIs) remain a major international economic concern and called for renewed attention to this pressing problem.
- The Treasury report and Bessent's speech recognized the United States as a key player in global imbalances but highlighted contradictions in US policy.
- The Treasury Foreign Exchange Report found no active currency manipulators but identified China's large surpluses as a chief contributor to global imbalances.
- Both Bessent and the Treasury report praised Germany's fiscal U-turn and its potential impact on reducing excessive current account surpluses.
- The next Foreign Exchange Report should focus on the Taiwan dollar's recent appreciation and could potentially pose whether it believes China has considerable fiscal space.
- Interested individuals can subscribe to OMFIF's newsletter for more information on this topic, as Mark Sobel, US Chair of OMFIF, is launching Global Public Investor 2025 on 24 June.
- The report offered a solid analysis of the nexus of global imbalances, providing insights for sustainable finance, investment, and business strategies in the general-news sector.
- The use of AI in policy-making and financial decision-making could help address the complexity of US policy and its global effects, providing more accurate data analysis and predictive reports.
