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December 17, 2020


VIETNAM: After dong-manipulation finding, what comes next?

BY Bob Herrera-Lim

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The US Treasury Wednesday labeled Vietnam a currency manipulator along with Switzerland, after both countries met its three criteria for the designation. Hanoi claimed Thursday morning its currency policies only promote macroeconomic stability and are not meant to provide an unfair advantage to its exports. The designation has no immediate effects, and subsequent actions will fall with the incoming administration of US President-elect Joe Biden. The next step is for the US Treasury to enter into negotiations with Hanoi on the steps that Vietnam will take to reduce the currency’s undervaluation and cut the country’s trade and current account surpluses. Likely, there is a perception in Hanoi that the politics of the outgoing administration played a significant part in the decision, and that the next administration will adopt a less strident and more flexible position during the negotiations; Vietnam may offer some concessions and allow the dong to strengthen to allow both sides a way out. The political effects are for now, therefore, limited.

However, if after a year Treasury considers Vietnam as having failed to take the appropriate steps towards these ends, then it can choose from a number of actions. Historically, the options have been relatively limited. Treasury could stop the Overseas Private Investment Corporation from approving new projects as well as prohibit the US federal government from purchasing goods and services from the country. Washington could also instruct the US trade representative to consider currency manipulation when negotiating bilateral or regional trade agreements and for the US Executive Director to the IMF to call for more rigorous surveillance. On the other hand, the US President can choose not to act if he determines that it could seriously and negatively affect US interests.

But what could potentially hurt Vietnamese exporters is the more recent rule, issued only in February 2020, by the Commerce department. Upon its determination, Commerce can treat currency undervaluation as a subsidy, which in turn allows the use of countervailing duties (CVD). However, the new rule does not contemplate an across-the-board CVD, but its application would instead be based on “on the ground circumstances” that a specific firm, group of firms or industry has received the financial benefit from the currency undervaluation. This is what happened in November, when Commerce used the new rule for the first time and made a preliminary determination that Vietnam’s currency policies had effectively subsidized its passenger vehicle and light truck tire exports, resulting in CVDs ranging from 6.2% to 10.1% on these products. Commerce is scheduled to make a final decision on the tire issue before 16 March 2021, and an injury finding from the US International Trade Commission is also needed.