U.S. Treasury report identifies Vietnam as currency manipulator
WASHINGTON, D.C. – The United States Department of the Treasury has issued a report to Congress identifying Vietnam as a currency manipulator, a factor that could weigh heavily into the government’s decision-making process regarding whether to impose tariffs on Vietnamese goods exported to the U.S., including furniture.
As part of an ongoing Section 301 investigation, the Office of the United States Trade Representative is already investigating Vietnam’s policies and practices relating to its currency, the dong. The Treasury report, which also identifies Switzerland as a currency manipulator, adds further ammunition to concerns that Vietnam is manipulating its currency.
Vietnam is the second largest exporter of finished furniture to the U.S. market. In 2019, it shipped nearly $5.7 billion in finished goods to the U.S. market, just behind China’s $9.7 billion. Thus, any tariffs imposed on Vietnamese-made goods, including furniture, could cause severe disruption to the U.S. furniture industry.
According to Treasury’s 70-page report, Vietnam over the past 12 months up through June 2020, met three major criteria the department uses to identify potentially unfair currency practices. Such unfair practices, the government said, can weigh on U.S. growth or harm U.S. workers and firms.
The three criteria include:
+ A significant bilateral trade surplus with the United States that is at least $20 billion over a 12-month period. This threshold, Treasure said, “captures a group of trading partners that represented roughly 80% of the value of all trade surpluses with the United States in 2019.” It also captures all trading partners with a trade surplus with the United States that is larger than about 0.1% of U.S. GDP.
+ A material current account surplus that is at least 2% of gross domestic product (GDP) over a 12-month period. Treasury said “This threshold captures a group of economies that accounted for about 86% of the nominal value of current account surpluses globally in 2019.”
+ A persistent, one-sided intervention in net purchases of foreign currency that are conducted repeatedly in at least 6 out of 12 months and total at least 2% of an economy’s GDP over a 12-month period.
“Vietnam’s trade surplus continued to expand year-over-year in the first half of 2020, helping push the current account surplus over the four quarters through June 2020 to 4.6% of GDP,” the report said. “Over the same period, Vietnam’s goods trade surplus with the United States reached $58 billion, the fourth largest among the United States’ trading partners. The Vietnamese authorities have conveyed credibly to Treasury that net purchases of foreign exchange in the four quarters through June 2020 were $16.8 billion, equivalent to 5.1% of GDP. The majority of these purchases occurred in the second half of 2019, prior to the onset of the COVID-19 pandemic.”
The report also noted that Vietnam has “tightly managed” the value of the dong relative to the dollar “at an undervalued level since 2016.”
“Vietnam has applied this policy consistently in periods of both appreciation and depreciation pressure,” the report said. “Additionally, Vietnam entered 2019 with a relatively low level of reserves. Over the four quarters through June 2020, however, Vietnam conducted large-scale and protracted intervention, much more than in previous periods, to prevent appreciation of the dong, in the context of a larger current account surplus and a growing bilateral trade surplus with the United States.”
The report added that the intervention has also contributed to undervaluation of the dong “on a real, trade-weighted basis, with the real effective exchange rate undervalued in 2019.”
Treasury determined based on a range of evidence and circumstances “that at least part of Vietnam’s exchange rate management over the four quarters through June 2020, and particularly its intervention, was for purposes of preventing effective balance of payments adjustments and gaining unfair competitive advantage in international trade. Hence, Treasury has determined under The (Omnibus Trade and Competitiveness Act of) 1988 Act that Vietnam is a currency manipulator.”
Treasury said it will push for the Vietnamese government to adopt policies “that will permit effective balance of payments adjustments and eliminate the unfair advantage created by Vietnam’s actions.”
“Vietnam should move expeditiously to strengthen its monetary policy framework to facilitate greater movement in the exchange rate to reflect economic fundamentals, while reducing intervention and allowing for the appreciation of the real effective exchange rate,” the report suggested, adding that Vietnam also should increase the transparency of foreign exchange intervention and reserve holdings.
“Vietnam should also work to durably reduce its external imbalances and strengthen domestic demand by leveling the playing field for the domestic private sector through measures such as improving its access to land and credit, reducing the role of state-owned enterprises in the economy, and improving financial supervision to help facilitate more productive lending and spur private domestic investment,” the report added. “Vietnam also needs to dismantle barriers to U.S. companies and U.S. exports in Vietnam to reduce the bilateral trade imbalance.”