US-Vietnam Currency Agreement, No Tariffs Imposed
- Vietnam struck a deal with the United States on currency manipulation charges in July, pledging not to deliberately weaken its currency.
- By reaching a mutual agreement, the United States and Vietnam can focus on further developing their strategic partnership cooperation.
- Vietnam Briefing examines other implications of this agreement for US-Vietnam trade relations amid COVID-19 and the likely impact it is having after the pandemic.
The US Treasury Department in December 2020 called Vietnam a currency manipulator, saying Vietnam intentionally undervalued its currency in order to gain an export advantage. However, in April of this year, after months of investigating Vietnam’s monetary practices, the Treasury Department dropped the designation, despite maintaining that the country still met the criteria for the manipulator label under a law of 2015.
On July 19, 2021, the State Bank of Vietnam (SBV) entered into an agreement with the United States regarding Vietnam’s monetary practices, in which Vietnam pledged not to deliberately engage in competitive devaluation. Vietnamese dong, as well as being more transparent about its monetary policy and exchange rates. The SBV reiterated that it did not use the exchange rate to create an unfair advantage in international trade, but rather to “promote macroeconomic stability and control inflation”.
Based on the agreement, the United States Trade Representative (USTR) subsequently issued a formal ruling, ruling that he would not take any trade restrictive measures, such as countervailing duties against Vietnam.
USTR’s announcement last week was warmly received by Vietnamese officials. This not only signals positive implications for bilateral trade relations and the investment environment between the two countries, but also reflects the subsequent international trade policies of the new US government under the Biden administration in the Indo-Pacific region.
Strengthening Vietnam’s ties with the United States
US President Joe Biden’s interim national security strategic direction document released in March 2021 named Vietnam, along with longtime US ally Singapore, as one of its partner countries in its plan. defense in the ASEAN region. This was manifested in the official visit of US Secretary of Defense Lloyd Austin to Vietnam in July 2021, in addition to Singapore and the Philippines, as the first visit to Southeast Asia by a senior member of the Biden administration.
These early diplomatic moves in the Asian region in the first six months after Biden’s inauguration consistently reflect Washington’s foreign policy outlook and commitment to its presence in the Asia-Pacific region.
Trade Vietnam – United States
According to Vietnamese Customs, in the first half of 2021, the United States remained Vietnam’s largest export market with revenue of $ 53.6 billion, up 37% from the same period Last year. Major exports to the United States included US $ 7.73 billion in machinery; US $ 7.61 billion in textile products, accounting for 49.7 percent of the total value of textiles and clothing exports; and US $ 5.76 billion in computer and electronic products.
Implications for Vietnam
As the Biden administration advances multilateral trade cooperation in Southeast Asia, it will likely continue President Donald Trump’s confrontational approach to China to counter the global economic influence of its “most serious competitor.”
It is widely believed that Vietnam has benefited economically from the US-China trade war and that this should continue to thrive under current US trade policy. With most US tariffs on Chinese goods remaining in place, foreign investors will be forced to seek other locations to relocate their manufacturing production – with Vietnam having become the ideal China plus a destination in recent years. This manufacturing shift, however, is not only caused by the trade war, but includes factors such as geopolitics, rising labor costs in China as well as the need to diversify sources of inputs. and supply chains in the midst of the pandemic.
After the allegation of manipulation of Vietnam’s currency, 76 U.S. business organizations, including the U.S. Chamber of Commerce, the National Retail Federation, and the Internet Association, collectively urged the U.S. commerce chief to refrain from ‘Impose punitive tariffs because of the adverse effects of any duty on American Manufacturers with operations in Vietnam.
These concerns are due to the fact that global supply chains are becoming more vulnerable due to border restrictions and blockages under the impact of COVID-19. Given the disruption of global supply chains and demand from US business organizations like Amazon and Google, the US government likely took these issues into account when deciding not to penalize Vietnam.
In addition, Vietnam’s participation in recent major free trade networks has paved the way for multiple opportunities for global economic integration. Ratification of the EU-Vietnam Free Trade Agreement (EVFTA), for example, will increase the competitiveness of the Vietnamese manufacturing market.
Likewise, Vietnam has also signed the United Kingdom-Vietnam FTA (UKVFTA) as the United Kingdom exits the EU, and the Regional Comprehensive Economic Partnership (RCEP) fostering trade relations between ASEAN and d ‘other major economies, including China, Japan, Australia and New Zealand. Zealand. Vietnam’s integration into the global economy will open up more market opportunities for foreign investors, including US companies looking to manufacture and sell in other markets.
Trade relations between the United States and Vietnam remain strong for the time being
Even if they remain positive, the United States should closely monitor its trade relationship with Vietnam. The steadily growing demand for Vietnam’s manufactured and industrial goods and the growing trade deficit are expected to weigh on future decisions. Given this growing bilateral trade imbalance, the United States may act on this in the long term.
On the one hand, the USTR, while concluding that it would not impose economic sanctions on Vietnam, on the other hand will continue to monitor Vietnam’s implementation of its currency valuation commitments.
Yet the relationship between Vietnam and the United States is not a superficial one based on temporary national interests. It is the result of the efforts for the enterprise and the development during the last decades of the two countries. Now that more bilateral trade opportunities arise for the two countries, the US-Vietnam relationship is expected to remain strong.
Vietnam Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors across Asia from offices around the world, including Hanoi, Ho Chi Minh City and Da Nang. Readers can write to [email protected] for further assistance with doing business in Vietnam.
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