By David Lawder
WASHINGTON (Reuters) - The Trump administration again refrained from naming any major trading partners as currency manipulators on Friday, but the U.S. Treasury's semi-annual currency report criticized China for the "non-market direction" of its economy and warned of global risks.
The report comes as the Trump administration pursues potential tariffs, negotiations and other restrictions to try and cut a massive trade deficit with China.
In the report, the U.S. Treasury said it has added India to a monitoring list for extra scrutiny, while keeping China, Japan, Germany, South Korea and Switzerland on the list started in 2016 by the Obama administration.
The report did not mention President Donald Trump's recent threats to impose billions of dollars worth of tariffs on Chinese goods over Beijing's intellectual property practices, or pending Treasury investment restrictions on Chinese investment in the United States.
It said China's yuan in 2017 on a trade-weighted basis was broadly unchanged against the dollar.
"The increasingly non-market direction of China's economic development poses growing risks to its major trading partners and the long-term global growth outlook," the Treasury said.
Treasury called for "further opening of the Chinese economy to U.S. goods and services, as well as reducing the role of state intervention and allowing a greater role for market forces."
Axel Merk, president and portfolio manager of Merk Hard Currency Fund in Palo Alto, California, said it was not surprising that Treasury did not name China a currency manipulator, saying that doing so is not the administration's interest.
“What labeling someone a currency manipulator means is handing over control to Congress to study the topic," Merk said. "By not labeling them a currency manipulator, they can continue pushing China through the Executive branch."
Treasury said India had increased its foreign exchange purchases over the first three quarters of 2017, with full-year purchases reaching a record $56 billion in 2017, or 2.2 percent of the country's gross domestic product.
"Given that Indian foreign exchange reserves are ample by common metrics, and that India maintains some controls on both inbound and outbound flows of private capital, further reserve accumulation does not appear necessary," the Treasury said in its report.
India ran a goods trade surplus of $23 billion in 2017 with the United States, far less than China's $375 billion goods trade surplus.
Treasury said China should advance macroeconomic reforms that support greater household consumption growth and help rebalance the economy away from investment.
Treasury also said it "places significant importance" on China adhering to its G20 commitments to refrain from engaging in competitive devaluation of its yuan.
Some China experts have speculated that Beijing could use yuan devaluation as a weapon in a broader trade war with the United States.
SOUTH KOREAN INTERVENTIONS
The currency report also did not provide an update on a currency agreement under negotiation with South Korea that was announced as part of an update to the U.S.-South Korean Free Trade Agreement.
The agreement was aimed at increasing the transparency of Seoul's foreign exchange interventions, and the Treasury said Seoul should "promptly begin reporting" such data.
Treasury estimated that South Korea had bought $10 billion worth of foreign exchange reserves from November 2017 to January 2018 but added that Seoul "should limit currency intervention to only truly exceptional circumstances of disorderly market conditions."
The Treasury report recommended that South Korea, Japan, Germany and Switzerland all take steps to bolster domestic demand, which would help to reduce current account surpluses and trade surpluses with the United States.
The Treasury said Germany "has a responsibility" as the world's fourth largest economy to contribute to more balanced trade flows.
"Allowing an increase in domestic demand against relatively inelastic supply should help push up wages, domestic consumption, relative prices against many other euro area members and demand for imports," the Treasury said.