US May Designate Taiwan as Currency Manipulator... No Significant Sanctions Expected

[Asia Economy Reporter Byunghee Park] The Biden administration's first semi-annual currency report (Macroeconomic and Exchange Rate Policies of Major Trading Partners Report) is expected to be released soon.

Bloomberg News reported on the 12th that the U.S. Treasury Department is expected to release the currency report on the 15th (local time) and that China will not be included on the currency manipulator list. Meanwhile, another foreign media outlet reported that Taiwan will be designated as a currency manipulator, noting that the Taiwan dollar was falling in the Asian foreign exchange market on the 13th. The dollar-Taiwan dollar exchange rate was trading around 28.5 Taiwan dollars per U.S. dollar, which was explained as a roughly 2% decline in the Taiwan dollar's value from its peak earlier this month.

Considering the U.S.'s political and diplomatic moves, the expectation that Taiwan will be designated as a currency manipulator while China is excluded is not easily understood. Even after President Biden took office, the U.S. has been in fierce confrontation with China. The Anchorage talks on the 18th of last month are a representative example. The U.S. is expanding exchanges with Taiwan to counter China, and China has issued warnings about this.

Foreign media expect that even if the U.S. designates Taiwan as a currency manipulator, it will not impose significant sanctions. Ultimately, it is anticipated that the U.S. will consider political interests. Iris Yang, ING's chief China economist, said regarding the possibility of Taiwan being designated as a currency manipulator, "The U.S. cannot simply consider economic issues in its relationship with Taiwan; it must always take political positions into account."

[Image source= EPA Yonhap News]

In fact, the U.S. is increasingly dependent on Taiwan amid the recent semiconductor supply shortage. At the 'Semiconductor CEO Virtual Meeting' held on the 12th, chaired by Jake Sullivan, White House National Security Advisor, and Brian Deese, Chair of the National Economic Council (NEC), Taiwan's TSMC, the world's number one semiconductor foundry, was invited. At the meeting attended by TSMC Chairman Liu Deyin and Choi Si-young, President of Samsung Electronics' Foundry Business Division, President Biden joined in the latter part of the meeting and urged the expansion of semiconductor production in the U.S.

Since the U.S. needs to source semiconductors from TSMC, it is expected that even if Taiwan is designated as a currency manipulator, no sanctions will be imposed. In reality, being designated as a currency manipulator does not immediately trigger sanctions from the U.S. The U.S. imposes sanctions such as excluding companies from government contracts only if there is no improvement one year after designation. Given President Biden's emphasis on demonstrating an advantage in competition with China, it seems unlikely that the U.S. will provoke conflict with Taiwan.

In Taiwan, there is already a response anticipating the possibility of being designated as a currency manipulator. Yang Jinlong, Governor of the Central Bank of Taiwan, acknowledged the possibility of such designation. Governor Yang recently testified before the legislature, saying, "If the U.S. tries to reduce its trade deficit with us, we could stop selling semiconductors. But the U.S. needs our semiconductors."

President Biden's appointment in February of Brad Setser, who has advocated strong responses to currency manipulators, as an advisor to the U.S. Trade Representative (USTR), is also analyzed as a sign of Taiwan's impending designation as a currency manipulator. Last year, the Treasury Department designated Taiwan as a currency monitoring country, citing Setser's report on the Central Bank of Taiwan's foreign exchange hedging strategy.

Earlier this year, there were also indications that the Central Bank of Taiwan had clearly intervened in the foreign exchange market. The Taiwan dollar showed strength in the foreign exchange market but repeatedly reversed to weakness toward the end of trading sessions. Economist Fang said, "In January and February this year, very unusual movements related to the Taiwan dollar were clearly visible in the foreign exchange market."

This content was produced with the assistance of AI translation services.