Paul Davidson

USA TODAY

President Trump on Sunday defended his reversal on a vow to label China a currency manipulator, suggesting the move is part of a strategic plan to convince China to work with the U.S. to confront North Korea’s missile buildup.

“Why would I call China a currency manipulator when they are working with us on the North Korean problem?” Trump tweeted. “We will see what happens.” Trump met with Chinese President Xi Jinping at his Mar-a-Lago resort this month.

During his presidential campaign, Trump promised repeatedly to brand China a currency manipulator because of its past efforts to drive down the value of the renminbi to gain a trade advantage.

But in a report to Congress on Friday, the Treasury Department acknowledged that China in recent years has been taking steps to bolster the renminbi’s value. That strategy has been aimed at preventing a flight of capital from the country.

As a result, the Trump administration would have been viewed as a “laughingstock” if it had branded China a currency manipulator, says Edwin Truman, former assistant U.S. Treasury secretary for international affairs. The currency manipulator label could have triggered negotiations between the countries and eventually potential US retaliation, such as tariffs.

Instead, the administration's first twice-yearly currency review singled out China and five other countries as needing to be monitored for their currency practices. 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.

Still, Treasury assailed China for driving down the value of its currency for about a decade, a move that hammered U.S. companies and workers.

“The distortion in the global trading system resulting from China’s currency policy over this period imposed significant and long-lasting hardship on American workers and companies,” the report said.

The campaign to weaken the renminbi vs. the dollar made Chinese imports cheaper for U.S. consumers and U.S. exports more expensive for Chinese buyers, widening the nation’s trade deficit with China. For goods, the U.S. trade gap with China was $347 billion in 2016 down, just 5% from its peak in 2015.

Related:

U.S.-China trade scorecard: advantage China

China eyes global economic leadership as U.S. turns inward

Why trade continues to make headlines under Trump

The report said China “continues to pursue a wide array of policies that limit market access for imported goods and services, and maintains a restrictive investment regime which adversely affects foreign investors.”

Treasury added: “China will need to demonstrate that its lack of intervention to resist appreciation over the last three years represents a durable policy shift by letting the (renminbi) rise with market forces once appreciation pressures resume.”

The report said Treasury would review the currency and other trade practices of the six nations named to the monitoring list and meet with finance officials from those nations to ensure progress in shrinking their trade imbalances with the United States.

"An essential component of this administration's strategy is to ensure that American workers and companies face a level playing field when competing internationally," Treasury Secretary Steven Mnuchin said in a statement.

Treasury hasn't branded any nation a currency manipulator — a highly charged assertion — since the Clinton administration labeled China as such in 1994. The designation requires intensive talks between the United States and the designated country and can lead to penalty tariffs imposed by the United States. Such tariffs, though, could be overturned in a review by the World Trade Organization.

Because it had been more than two decades since any country had been named a currency manipulator, Congress in 2015 changed the law to require Treasury to put countries on a less onerous "monitoring" list.

The three criteria Treasury must use to determine whether a nation should be placed on the monitoring list are: the size of its trade surplus with the United States; the size of its current account trade surplus with the rest of the world; and the number of times it has intervened in currency markets in recent months. China’s current account surplus -- which indicates whether a nation is a net lender to the rest of the world – fell to 1.8% of its gross domestic product last year from 2.8% in 2015.

Contributing: Associated Press