(Bloomberg) -- The Trump administration stepped up its criticism of China’s lack of progress in rectifying its trade imbalance with the U.S., amid a brewing dispute between the world’s two biggest economies.

The U.S. Treasury didn’t name China or any other nation a currency manipulator in its semi-annual foreign-exchange policy report, though it added India to its monitoring list. The department said it’s considering expanding the number of nations covered by the report, which currently includes America’s 12-largest trading partners and Switzerland.

The U.S. “is strongly concerned by the lack of progress by China in correcting the bilateral trade imbalance and urges China to create a more level and reciprocal playing field,” the Treasury said in its report released Friday in Washington. In its previous review in October, the Treasury didn’t use the word “strongly” to express similar concerns.

“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,” Treasury said on Friday.

Despite the criticism, the tone of the report is more subdued than President Donald Trump’s own remarks about China, which he has blasted for failing to reduce its trade surplus and open its markets to American investment.

Trade tensions have escalated in recent weeks as U.S. and China have threatened each other with tariffs, rattling financial markets and raising concerns the two economies are barreling toward a full-blown trade war. Trump has proposed duties on $150 billion in Chinese imports, while Beijing has said it will retaliate in-kind on everything from American soybeans to planes.

Trump has toned down his rhetoric since Chinese President Xi Jinping gave a speech this week in which he promised his government would increase imports, lower auto tariffs and open its financial sector to more investment. “Now we’re really negotiating and I think they’re going to treat us really fairly,” Trump said on Thursday. “I think they want to.”

The Asian nation is evaluating the impact of a gradual yuan depreciation as the country’s leaders weigh their options in the trade spat with the U.S., according to people familiar with the matter. A weaker yuan makes imports from China to the U.S. cheaper, driving up America’s trade deficit. The president has repeatedly complained about the U.S. trade shortfall with China, which reached $337 billion in goods and services last year.

China’s yuan has gained about 10 percent against the dollar over the past 12 months, climbing in March to the strongest level since August 2015. Its foreign exchange reserves stood at $3.14 trillion at the end of March.

Campaign Promise

Trump campaigned on promises to crack down on China’s unfair trade practices and rebuild the American manufacturing sector. But after taking office, he backed down on a threat to label China a currency manipulator.

The Treasury kept China, South Korea, Japan, Germany and Switzerland on its currency monitoring list for nations it considers to have a significant trade surplus with the U.S., a high current-account surplus or to be intervening in the currency markets.

“The tone on China wasn’t more hawkish than originally feared,” said Bipan Rai, Canadian Imperial Bank of Commerce’s North America head of foreign-exchange strategy. “The FX market should really take this in stride.”

In adding India to the watch list, Treasury noted that the nation increased purchases of foreign currency last year and it has a “significant” trade surplus with the U.S.

India’s foreign-exchange reserves have surged to more than $420 billion, with the central bank building reserves even as the currency came under pressure this year.

In its report, the Treasury said further reserve accumulation by India “does not appear necessary.”

The U.S. hasn’t branded any country a manipulator since 1994. The department is required by law to report to Congress twice a year on whether America’s major trading partners are gaming their currencies. The report is the government’s formal channel to impose the manipulator designation, leading to a year of negotiations for a solution and penalties if the practice continues.

(Updates with CIBC comments in 12th paragraph.)

--With assistance from Katherine Greifeld Nasreen Seria Enda Curran Jeff Kearns Connor Cislo Jiyeun Lee Catherine Bosley Andrew Janes Sarah McDonald Randall Woods and Boris Korby

To contact the reporters on this story: Andrew Mayeda in Washington at amayeda@bloomberg.net, Saleha Mohsin in Washington at smohsin2@bloomberg.net.

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Sarah McGregor

©2018 Bloomberg L.P.

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