Taiwan’s Inclusion on U.S. Currency Monitoring List: A New Normal?
Taiwan’s Central Bank has indicated that the country’s inclusion on the United States’ currency monitoring list could become a regular occurrence. This comes after Taiwan was once again placed on the U.S. Department of Treasury’s list of major trading partners warranting close scrutiny regarding their currency practices and macroeconomic policies. The inclusion marks Taiwan’s sixth consecutive appearance on the twice-yearly list.
Taiwan’s Central Bank Responds: Routine Monitoring
In a statement released after the U.S. announcement on Thursday (U.S. time), Taiwan’s central bank acknowledged the situation, emphasizing that the communications channels between Taiwan and the United States are well-established. The central bank said these communication channels help both parties maintain a comprehensive understanding of each other’s economic and foreign exchange policies.
Taiwan’s central bank also pointed out that this ongoing monitoring relationship should not be seen as alarming but rather as a routine part of Taiwan’s economic engagement with the U.S. Given Taiwan’s strong trade ties with the U.S., particularly in the technology and semiconductor sectors, such scrutiny may continue as the trade dynamics evolve.
Taiwan on the U.S. Watchlist: Context and Implications
The U.S. Department of Treasury placed Taiwan on the list alongside other global economic players such as China, Japan, South Korea, Singapore, Vietnam, and Germany. This list, required by the Omnibus Trade and Competitiveness Act of 1988, is meant to analyze the currency practices and macroeconomic policies of major U.S. trading partners. While the presence on the list does not imply currency manipulation, it does highlight potential areas of concern.
The U.S. Treasury’s report uses three primary criteria to determine whether a trading partner should be monitored:
- A bilateral trade surplus with the U.S. of at least US$15 billion.
- A current account surplus equivalent to at least 3% of the economy’s GDP.
- Persistent foreign exchange intervention, where a country buys foreign currency in large quantities, with these purchases making up at least 2% of its GDP over a 12-month period.
If a country meets two of these three criteria, it is automatically included on the U.S. currency monitoring list. If it meets all three criteria, it may be classified as a currency manipulator.
Taiwan’s Economic Indicators and Trade Surplus with the U.S.
In its most recent report, Taiwan’s central bank confirmed that Taiwan meets the first two of the U.S. Treasury’s criteria. The country reported a trade surplus of US$57 billion during the four quarters leading up to June 2024. Additionally, Taiwan’s current account surplus accounted for 14.7% of its GDP—a significant figure reflecting the country’s robust export-driven economy.
Taiwan’s trade surplus with the U.S. has largely been driven by the demand for high-tech goods, especially semiconductors and electronics. Taiwan’s semiconductor industry, in particular, plays a crucial role in the global supply chain, with increasing demand from markets in the U.S. and other regions.
The growth in Taiwan’s trade surplus with the U.S. is also linked to other global factors, such as the rise of remote work and schooling, the ongoing trade tensions between the U.S. and China, and the surge in demand for advanced technologies like artificial intelligence.
No Currency Manipulation, Says Central Bank
Taiwan’s central bank has repeatedly emphasized that its trade surplus with the U.S. is not the result of currency manipulation. The central bank insists that Taiwan’s large surplus is driven by natural market demand, especially for tech products like semiconductors, and is not the result of any deliberate attempt to devalue the Taiwanese dollar or distort trade balances.
Moving Forward: Suggestions for Reducing the Surplus
In a recent report submitted to Taiwan’s Legislative Yuan, the central bank suggested measures to address the growing trade surplus with the U.S. It recommended that Taiwan increase its imports of goods and services from the U.S., particularly in the areas of energy, agriculture, and military goods. This could help reduce the surplus and ease tensions with the U.S. on trade issues.
U.S. Treasury’s Recommendations for Taiwan
In its Treasury report, the U.S. urged Taiwan to monitor risks in its non-bank financial sector, particularly in relation to foreign exchange risks. The report also recommended that Taiwan should limit its foreign exchange intervention and allow currency movements to align with economic fundamentals.
Table: Key Economic Figures for Taiwan
| Economic Indicator | Value |
|---|---|
| Trade Surplus with the U.S. | US$57 billion |
| Current Account Surplus | 14.7% of GDP |
| Bilateral Trade Surplus with U.S. | Above US$15 billion |
| GDP Growth | Robust, driven by exports and technology |
| Recommended Imports from U.S. | Energy, Agriculture, Military Goods |
Frequently Asked Questions (FAQs)
Q1: What is the U.S. currency monitoring list?
A1: The U.S. currency monitoring list is published by the U.S. Department of Treasury to evaluate the currency practices and economic policies of major trading partners. It helps identify potential currency manipulation or other trade practices that may unfairly impact global trade.
Q2: Why is Taiwan on the U.S. currency monitoring list?
A2: Taiwan is on the list due to its large trade surplus with the U.S. and a current account surplus that constitutes a significant portion of its GDP. These factors meet two of the three criteria for inclusion.
Q3: Does being on the currency monitoring list mean Taiwan is manipulating its currency?
A3: No, being on the list does not imply currency manipulation. It simply indicates that Taiwan’s economic policies are under scrutiny due to its significant trade surplus with the U.S. and the growing demand for Taiwanese products, especially semiconductors.
Q4: What is Taiwan’s stance on the issue?
A4: Taiwan’s central bank maintains that the country’s trade surplus with the U.S. is driven by market demand for high-tech products, not by currency manipulation. Taiwan also suggested measures to reduce the surplus, including increased imports from the U.S.
Q5: How does this affect Taiwan’s relationship with the U.S.?
A5: The inclusion of Taiwan on the list is a routine part of the economic relationship between the two countries. Taiwan remains an important trading partner for the U.S., especially in the technology and semiconductor sectors, and the two nations maintain open communication to ensure mutual understanding.
