(Adds details on currency manipulation issue, trade deal with
China, agreement with Congress on security reviews of deals,
background)

By David Lawder

SAO PAULO, July 20 (Reuters) – The United States is
monitoring the recent weakness in China’s yuan currency and will
review whether the currency has been manipulated, Treasury
Secretary Steven Mnuchin told Reuters on Friday.

Mnuchin said in an interview in Sao Paulo, Brazil, that the
yuan’s weakness would be reviewed as part of the U.S. Treasury’s
semi-annual report on currency manipulation. The report is due
on Oct. 15 and will be based on activity for the first six
months of 2018.

Asked whether he was concerned that China may be using its
currency as a weapon in an escalating trade fight with the
United States, Mnuchin said: “I’m not saying whether it’s a
weapon or not a weapon. There’s no question that the weakening
of the currency creates an unfair advantage for them.

“We’re going to very carefully review whether they have
manipulated the currency,” he said.

Mnuchin’s comments raised the specter of designating China
as a currency manipulator for the first time since the early
days of the Trump administration in 2017. Treasury has refrained
from making that designation despite Trump’s campaign promise to
do so as soon as he took office, and Trump himself in April 2017
had backed away from that stance and said that China was not a
currency manipulator.

Mnuchin said the reason for applying the label on China is
partly because the yuan had been rising or stable until earlier
this year.

Various U.S. lawmakers, both Democrats and Republicans, and
manufacturers in years past had long complained that China
deliberately undervalued its currency to give its companies an
unfair price advantage in international trade.

Mnuchin said he would be discussing China’s non-market
economy policies with Group of Seven allies Britain, Canada,
France, Germany, Italy and Japan on the sidelines of the Group
of 20 meeting in Buenos Aires this weekend.

Trump, in a tweet, on Friday accused China and the European
Union of manipulating their currencies, saying it is “taking
away our big competitive edge.”

He also repeated his complaints that the Federal Reserve’s
interest rate hikes were causing the dollar to rise, and said he
was ready to impose U.S. tariffs on all $500 billion in goods
imported from China.

China’s yuan, battered by the trade brawl, has lost 7.5
percent of its value since the end of the first quarter, hitting
a year low of 6.767 to the dollar and marking its biggest 90-day
drop since yuan exchange rates were unified in 1994.

Mnuchin said the Trump administration was open to a trade
deal to end tariffs on Chinese goods, but only if China was
sincere in making meaningful changes to its technology transfer
and joint venture policies, as he noted that China frequently
voices support for a rules-based trading system.

“We want them to play by the rules. And that means no forced
technology transfer, no forced joint ventures and giving our
companies the opportunity to compete fairly,” Mnuchin said.
“These are issues that are completely consistent across the G7.
These issues are shared jointly.”

Mnuchin said he would be discussing China’s non-market
economy policies with Group of Seven allies Britain, Canada,
France, Germany, Italy and Japan on the sidelines of the Group
of 20 meeting in Buenos Aires this weekend.

DEAL ON REVIEWING FOREIGN ACQUISITIONS

Mnuchin also confirmed that the U.S. Congress had reached a
deal for final language to modernize and strengthen security
reviews of foreign acquisitions of U.S. companies and joint
ventures with U.S. companies.

Mnuchin said he was pleased with the final product, but
declined to discuss details, saying only that it would not
target specific countries.

Mnuchin had persuaded Trump last month to use the
legislation to better protect sensitive U.S. technology from
Chinese acquisition, rather than ordering China-specific
investment restrictions.

“It was our desire to have the proper tools to protect
technology wherever it may be needed,” he said.

Mnuchin also said the Treasury was open to the possibility
of lifting sanctions on Russian aluminum giant Rusal if the
right solution can be reached. He said it was not the Trump
administration’s objective to put the company out of business
over its ties to sanctioned Russian tycoon Oleg Deripaska.
(Reporting by David Lawder
Editing by Ross Colvin and Leslie Adler)